How many scenario plans do I need to do?

Dear Aunty B,

I am in the middle of budgets, my worst time of the year.

Given things are so unstable, with not even the world’s best forecasters getting anything right, I have decided to take the advice of my accountant and work with him on a few scenarios.

We are disagreeing on the point of the scenarios. I want to do some scenarios based on the economy getting better and the business growing really fast.

He wants me to do the opposite, risk scenarios based on things getting worse and us coming out okay.

I can spend the next two months doing scenarios and be none the wiser at the end of it.

I am also not happy about us being just okay. We need to keep growing.

Glass half full, Brisbane.

 

Dear Glass Half Full,

There. You put your finger on it.

You are the optimist and your accountant is the … well, he would say realist – so let’s leave it at that.

Look, just by doing the risk scenarios doesn’t mean that is what you are going to be stuck doing.

What you need to do are two plans – one for fast growth and one for moderate growth.

Then you need to test those plans against some unlikely scenarios.

Say revenue falls 10%. Or your costs rise 15%. What does your business look like in those situations?

It’s not hard to do and it gives you a very clear picture of how fast things can change if just a few things go wrong.

That doesn’t mean you then back down from your plans because you have scared yourself witless and your accountant isn’t helping with your growth ambitions.

It means you have a much clearer understanding of your business and you have a greater awareness of how soon you need to act when certain warning bells begin to ring.

And yes, you are right – few plans ever really happen the way we think they will.

And of course you are better off out there building your business.

But this is an important time of year to focus on fundamentals and identifying the what ifs and the levers you need to pull in an emergency.

 

Be smart,

Your Aunty B.

 

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