Using financial models to forward plan for potential business outcomes used to be reserved for big businesses only. Modern accountancy is changing that landscape and making scenario planning relevant for even small businesses.
Developing technologies
While small businesses used to generally make important business decisions based on a gut feeling, or an initial business plan, using scenario planning is becoming more common. This is down to an increased awareness of the skills needed to implement scenario planning, as well as access to more sophisticated technology at every level.
Scenario planning has long been used by large companies to avoid any costly mistakes. It also leads to businesses being flexible with their approach to the future of their work. All of which is just as relevant for an SME as it is for a large company.
Financial models aid understanding
Business ideas can seemingly lead to significant growth, but using sophisticated financial models to plot out potential scenarios this can be questioned and analysed before decisions are made.
Questions such as the speed with which a business can scale up to achieve growth, how much recruiting do they need to do, are their premises large enough and do they have room for the stock they need can all be answered with scenario planning.
Working out the impact of questions like these on cashflow can clearly show where a business is looking at a cash shortfall and how much it could be. This should then feed into plans for funding and investment as it will show where a company needs extra financing.
Seeing problems before they hit
Scoping out the possible ramifications of an unexpected delay can help get a plan in place and save money. For example, something as simple as moving to new premises can throw up plenty of unexpected surprises.
Perhaps the moving date has to shift, or the move takes longer than anticipated. These scenarios could affect cost and work time.
Scenario planning means you have a contingency plan in place for such eventualities.
Easier access to financing
If you’re an SME looking for funding then showing credible, backed up cashflow forecasts will give providers confidence in your business.
A visible demonstration that shows you have considered scenarios that could happen and how you would deal with them, will go a long way to securing funding, as you can reassure providers about your ability to repay.
Putting you in control
Scenario planning at its simplest level puts you in charge of your business. It enables you to manage problems better, deal with potential disruptions and maintain your bottom line.
It’s not possible to predict the future of your business with complete accuracy, but it is possible to work out what’s most likely to happen. You don’t have to rely on hunches, guesswork or good fortune. Scenario planning is not just a back up tool, it can accelerate the success of your business.
