What is the Difference Between a Business Plan and a Contingency Plan?

Osmand Vitez

The difference between a business plan and a contingency plan is that the former is a roadmap for starting a business, while the latter is in place to ensure a business can continue after a disaster. Disasters can include fire, theft, major weather events, or labor strikes. Entrepreneurs are typically the users of business plans, while established companies in business for several years will have a need for a contingency plan. These are the most common differences between a business plan and a contingency plan.

A business plan is a strategy for starting a business.
A business plan is a strategy for starting a business.

Writing a business plan is often the first step to starting a business. Sections include: information on the general idea for the business, steps necessary to find a location and materials for producing goods or services, detailed financial needs, a marketing plan, and other bits of information. While the business plan and a contingency plan may coincide in some parts, they will most often be two completely different documents. Entrepreneurs will usually make a contingency plan that provides information on what actions will be taken if the new business venture struggles during the early months and years of operation. Banks, lenders, and investors are typically the primary users of business plans. These groups make plans to lend money for new businesses in hopes of making an investment from the growth of the business. Eventually, the business plan and contingency plan may grow and mesh together as the business grows in size.

Contingency plans provide focused information for use by internal users. Owners, managers, and supervisors often need the contingency plan for guidance during major disruptions to the business. Large or established companies can incorporate a business plan and contingency plan into their overall corporate governance strategy. Publicly held companies will need these plans in place to assure investors that the company will not be unprepared for natural or manmade disasters or unplanned events. Lenders may also require these plans for companies that operate in dangerous or unstable environments, such as oil, mining or shipping companies, as these businesses are more prone to disruption.

Writing a business plan and a contingency plan will also help owners and managers uncover weaknesses in planned business operations. Companies may determine they need to alter operations if they will be unable to continue normal operating procedures during a major disruption. In some cases, the plans are only that — plans — and may need to be changed or discarded at a moment's notice. Companies may be unable to have contingencies in place for all unforeseen events. Sometimes, changes are needed that were not previously written down in the plan.

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