What is scenario planning and what does it entail?
It’s the process of planning for alternative futures or crystal ball gazing!
‘Will we see a V shaped recession and bounce back immediately, will there be a second spike or lockdown, will we find a vaccine?’ The questions go on and the reality is none of us know what is going to happen next week, let alone in 12 or 24 months’ time.
‘So why should we scenario plan?’
The key to your success is making informed decisions. Scenario planning provides you with a financial assessment of your business. If you can understand what your business may look like in certain situations you can plan to mitigate risk.
The fact is you can’t control the market, you can’t control the economy and you can’t control the environment. So don’t even try! You need to have an awareness of what may happen but as there are so many variables, for simplicity, I would recommend you define one scenario as ‘best case’ and one as ‘worst case’.
Remember, what you can control is your business and how you go about your business. Be proactive.
By understanding what your business looks like in a best case and worst case scenario, you may choose to:
- Make redundancies or employ people
- Pivot your business or push an existing product
- Sell your business or defer your exit plans
- Raise debt finance or invest cash elsewhere
And many, many more.
Scenario planning promotes informative decision making; it helps you understand when to make a decision and what decisions to make. If you plan effectively and act quickly, you will increase your chance of success. We’re in a period of recession and for many of us success may be defined as ‘survival’. Live to fight another day, position your business to come out the other side stronger than your competitors and you will reap the rewards of your hard work.
Talk to your accountant about scenario planning. They will support you, guide you and they provide an independent assessment which can be invaluable.
If you have you questions or would like to discuss scenario planning, please contact Stuart Hutchison on 07590 440 643 or email firstname.lastname@example.org.
You can watch our related webinar here: Scenario planning and cash flow forecasting: How to plan for uncertainty