Scenario planning can help you prepare when operating in volatile and changeable business environments.
Scenario planning uses your existing business data to forecast your potential sales, income and expenses under various situations. You get a better understanding of the financial impact that threats,opportunities may have on your business, enabling you to plan for these eventualities and make decisions faster.
Three common scenarios are:
1. Business-as-usual (BAU);
2. Breakeven; and
3. Worst-case scenario.
It may be that no significant changes happen in the market.What does this mean for you?
This baseline scenario relies on historical projections ofyour existing sales, customer retention and growth. Having managed the businessthrough similar markets, you can use your experience to project your costs,spending and budgets forward in time.
This helps you plan for a stable and consistent businessjourney over the course of the upcoming periods with detailed numbers to guideyour hiring, resourcing, cash management and investment strategy.
The breakeven scenario calculates the minimum revenue requiredfor you to meet your projected expenses.
It is useful as a quick measure of your business health e.g.are you achieving breakeven each month, and long is it taking to reach breakeveneach month. With this information you can make decisions around increasingsales activity, inventory levels or expenses.
It pays to hope for the best outcome, but also to considerthe worst outcome.
You can plan for the potential worst outcome for thebusiness using forecasting and your knowledge of the current market. If there’sa 20% price hike in your supply chain, what impact would this have on youroperational costs, cashflow and profit margins?
When you know what the big threats might be, you can developa scenario plan that prioritises immediate cash preservation and spendmanagement, while also minimising debt.
Book some time with our team to start scenario planning for your business.
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