IT is standard practice for all vehicles on the road to have a spare tire, just in case you get a flat. However, in reality, you don’t even think too much about it and chances are that you never even have to use it. I think most people don’t even know how to change their tires. Nonetheless, a spare tire becomes a life saver when you get into trouble with a flat tire.
A back-up plan provides you with a way out of trouble like getting an insurance coverage for death, disability, fire, theft, damage and other losses. However, let us focus on your cash flow back-up plan. What happens to you if your primary source of money disappears? If your only source of income is your job and you get fired or the company goes bankrupt, what do you do? If you were only relying on your parents or spouse financially and they die or leave you, what do you do? If you had put everything you had in a business that failed or shut down, what do you do?
There are many things you can do for that rainy day when you need to have a back-up plan or alternative. I am certain that you have heard of the old proverb “don’t put all your eggs in one basket,” which appeared in Don Quixote by Miguel de Cervantes in 1615. This is telling us that if you put all of the eggs from your hens in one basket and should you drop the basket, you lose all your eggs. This is a lesson in diversification, which tells us that you should not just invest in one asset type, company, industry, currency or country.
You probably have also heard a quote from one of the founding fathers of the United States, Benjamin Franklin (1706 to 1790): “an investment in education gives the best returns.” You may lose your job, your house may burn down, your business closed, your assets confiscated and you may end up being a refugee. They can take all of that away from you but you still have your back-up plan which is your education, knowledge and skill. Many people have risen from the ashes to regain their former wealth and stature.
Back-up plans are also needed for business continuity such as manpower, facilities, suppliers, customers and even a new business model. This requires a certain degree of redundancy, training, excess capacity and sub-optimal pricing. As an example, you may have one supplier that gives you the lowest price every single time for a raw material, but does that mean you buy everything from that supplier only? Most companies have a multiple supplier policy such that if one supplier is unable to deliver, then you can still source from other existing suppliers. Likewise, you don’t want to be reliant on just one customer.
Establishing a network of business contacts, associates, friends, government officials and all kinds of people may come in handy in providing you with your back-up plan. Much like having a spare tire in your car, the network of people you develop over the years can give you that level of comfort knowing that they are just there in case you need them.
The views and comments of George S. Chua are his own and not of the newspaper or FINEX. Comments may be sent to email@example.com.