Contingencies in Business

In business, contingencies come in two forms. First, contingencies come in the transaction between two stakeholders. An example is real estate contracts with a clause that says that a sale is only complete after certain conditions are met. A more common example is in hiring. You may extend a conditional offer to a candidate, contingent on their references checking out.

The second form which contingencies come in is in business planning. Contingency planning can be seen in risk management. This gives the business with some direction in the form of a plan when disruptive events occur.

Definition of contingent

Something is contingent when it occurs or exists only if certain circumstances are the case. This means that something is dependent on or conditional to another event.

Why make a transaction contingent

The main reason that businesses use contingent clauses in transactions is to ensure that all conditions are satisfied before the executing the contract. Using such clauses allow businesses to communicate to transaction parties that something is likely going to occur. This puts the onus back on the other party of the transaction to follow up with meeting the conditions.

Example of contingent transactions

In the mergers and acquisitions world, contingent consideration occurs when there is a discrepancy between the buyer’s price and the seller’s price. For example, if the buyer believes the business is worth $20 million but the seller believes it is worth $25 million, the buyer may create use contingent consideration to bridge the gap. They will propose to pay $20 million upfront and the remaining $5 million if they meet the conditions. The remaining $5 million is the contingent consideration.

Contingency planning for an organization

While contingent clauses in transactions can help businesses reduce foreseeable risk, contingency planning responds to possible scenarios that have not happened yet. This is akin to having a plan B. The main objective of a contingency plan is to maintain and or restore business continuity.

Businesses create contingency plans for the possible scenarios that can potentially lead to significant destruction of value. The plan contains a set of procedures that outlines what is to be done in the case of an event. Some organizations refer to these plans as disaster response plans. Common scenarios that businesses create contingency plans for are natural disasters, such as a tsunami or an earthquake, or law suits, such as a customer suing for a faulty product.

A great example of an organization that exercises strong contingency planning is the diner chain, Waffle House. With many of their diners located in Southern United States, the business has built strong capabilities on how to handle natural disasters. There is even a famous Waffle House Index that some use as a gauge on how detrimental a disaster actually is.

Creating contingency plans is beneficial for businesses in many ways. First, it forces businesses to brainstorm practical solutions to improbably scenarios that cause significant destruction. This exercise is beneficial for helping teams develop the skills for working through uncertainty.

Second, having a contingency plan will ensure that the business can respond accordingly when an uncertain event occurs. It outlines what to do to restore operations for business as usual.

Businesses carrying significant risk may have to account for this risk in their financial statements. Liabilities that reflect probable business events are contingent liabilities.

The Professional Leadership Institute provides training on How to Create a Business Plan and offers a free preview.

Contingent liabilities

A contingent liability is an accounting posting that represents a potential liability that is likely to occur. The most common examples of contingent liabilities are warranties and or pending lawsuits. Because these events are probably and easy to estimate, GAAP compliance requires that they financial statements reflect these liabilities.

For businesses that are public, finance and accounting departments may have to provide an estimate for contingent liabilities as part of GAAP compliance. For example, businesses that provide warranties for their products estimate the potential cost of the warranty and book it as a warranty expense.

Key takeaways

  • Business create contingent transactions to reduce risk and ensure fulfillment of all conditions
  • Businesses should create contingency plans to ensure business continuity during a disruptive event
  • Practicing and reviewing contingency plans will equip employees with the skills to navigate through uncertainty
Recommended Resources:

Uncover your strengths and weaknesses with our complimentary assessment. Boost your effectiveness at work and with your team.

Free Resource Library
Access our extensive collection of valuable resources for instant support in your personal and professional growth.

Explore Our Course Library
Enhance your leadership skills with our diverse selection of courses. Take your abilities to the next level and become a more effective leader and team player.


Our Clients Love the Professional Leadership Institute

Your team will, too! Check out some reviews from our students.
The PLI program was invaluable to our network.
The range of topics delivered, the open dialogue, experience, and examples that PLI brought to each session were outstanding and provided a path for our Franchisees and Managers to look at leadership, coaching, and connecting with their teams in a new light. Many have implemented these strategies in their bakeries and have seen immediate results.
Michelle C.
COBS Bread
Highly recommend to help your team move forward
We have locations around BC and Alberta, so getting people on the same page can be very difficult... Until now. Our entire management team and location managers take the same great courses and then meet monthly online with our coach to apply it to our situation. People are engaged, the courses are excellent, we love our coach, and we are all learning together!
Jason Fawcett
President, Kelson Group
The result has been a transformation of our culture. 
We decided to implement PLI's strategies across the country in over 150 locations and over 3500 employees.  The result has been a transformation of our culture.  People's lives have been positively impacted - professionally and personally.  Morale is high and sales and profits are up as a result.
Daryl Verbeek
Daryl Verbeek
We’ve learned how to fix ongoing personnel issues once and for all
The roadmap laid out set our business up to quintuple in sales.  We've learned how to fix ongoing personnel issues once and for all, attract top talent, and spend our time focused on results, not internal staffing problems.  I highly recommend PLI to you - it's worked for us!
John DeJong
Satisfied Client
I had no idea that running a business could be this fun!
In less than 18 months of working with Trevor, he has transformed my business from being average to exceptional, where mediocrity is not acceptable, where being great is standard.  Working with PLI has allowed me to realize my dream of not simply owning a job, but owning a business.
Justin Bontkes
Principal, Caliber Projects
Our culture has taken major steps forward this year
Our culture has taken major steps forward this year with Trevor’s help.  He is funny, relatable, and his tools are very very practical and have helped us focus and upgrade our teams throughout our retail network. Trevor recently spoke to an employee group, and one person remarked, “I could listen to Trevor all day.”   We would highly recommend Trevor.
Stan Pridham
Founder, KMS Tools
The results have been remarkable
At first, we resisted, “This just won’t work with a law firm.” But we persisted and the results have been remarkable: our client base and profits have steadily improved, and staff engagement and morale is the healthiest its ever been.
Doug Lester
Partner, RDM Lawyers
Helped our fast-growing business become what it is today
I've experienced PLI's approach first hand and it's been crucial to sustaining our growth.  I can't imagine a business that wouldn't benefit greatly from his help.
Brian Antenbring
Founder, TEEMA
Provided practical ways to make positive changes
Trevor was incredibly well-received by the entire organization. He was able to articulate people issues that many of our franchisees were experiencing and provided them with practical ways to make positive changes. We have implemented the Star Chart tool across the organization and see it as vital to building happy, effective teams.
Aaron Gillespie
President, COBS Bread
Scroll to Top

Start Learning Today

For Individuals

Unlock your potential and accelerate your career with sought-after management and leadership skills.


Transform Your Organization

For Teams

Book a consultation to discuss your challenges and discover how we can help you build a winning team.


Sign Up For Weekly Tips!

Get Weekly Coaching Tips Straight To Your Inbox Every Monday.