Hey, how are you feeling these days? I know, it’s crazy out there. Elections, inflation, unemployment…you name it. It seems like nothing is certain anymore. And that makes it hard to plan for your business, right? You don’t know what’s going to happen next, so you just keep doing what you’ve always done. Hoping for the best, but preparing for the worst.
But, there is an alternate approach. A way to be ready for whatever comes your way. A way to have a clear vision of your future, and a strategy to get there. A way to be proactive, not reactive.
It’s called Scenario Planning. And it’s not as complicated as it sounds. It’s basically a way of creating different stories about how your business could perform in different situations. And then figuring out what you would do in each case.
Scenario Planning is more than just a budget. A budget is just numbers on a spreadsheet. It tells you how much money you expect to make and spend. But it doesn’t tell you why or how. It doesn’t tell you what could go wrong, or what could go right. It doesn’t tell you how to adapt or grow.
With Scenario Planning, you create a richer picture of your business. You look at things like cash flow, profit margin, growth rate, and investment opportunities. You think about how they could change depending on different factors. And you plan accordingly.
Here’s how it works in five simple steps:
- Think about the assumptions you’re making and the potential market changes For example, one scenario could be that the tax rates go up, the inflation stays high, and your sales drop by 10% because of a new competitor.
- Look at the ratios in your business If your sales go down by 10%, how does that affect your cost of sales? Does it go down by the same amount, or does it go up because you lose economies of scale?
- See how the ratios in your business relate to each other If you pay more to your staff, does that lower your cost of sales? If you double your sales, how do your fixed costs change? By understanding the relationship between different ratios, you can see the trends more clearly.
- Compare your scenarios with the past Use the assumptions and ratios you’ve come up with to see how your business would have performed in the past under different conditions. How does the projected profit compare to the actual profit in previous years? This can help you spot any gaps or errors in your planning.
- Accept that your Scenario Plan is going to be wrong No plan is perfect, right? The point of a plan is not to predict the future, but to prepare for it. So, the last step is to check your plan against reality. See what actually happens, and compare it to what you expected. Then you can see which assumptions were off, and how the situation differs from the scenario you planned for.
This last step is where the magic happens. This is where you learn from your plan, and improve it over time. This is where you get the benefits of Scenario Planning for your business: faster decision making, increased agility, reduced risks, and improved communication.
So, what are you waiting for? Start Scenario Planning today! And if you need some help with that then our free Scenario Planning Template could help. Drop us an email to get access. It could the way you run your business.
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