Proactive Scenario Planning Steps: Business Owner’s Guide

Imagine turning uncertain situations in your business into favorable outcomes? Easier said than done. However, this is where the importance of  scenario planning and “what if” modeling can help businesses thrive in the face of uncertainty. By testing the impact of various strategic options being considered, your company can stay ahead of the curve and can quickly pivot to situations and outcomes.

In 2022 alone, countless economic, geopolitical, inflationary and supply chain challenges caught companies off guard. Periods of volatility are testing times for any company. As we enter 2023, proactively planning ahead  and strategizing concrete solutions for worst-case scenarios, you can minimize  negative consequences your business could unexpectedly face. Using scenarios-based plans and real-life situations helps business leaders to understand how to  think critically and make better informed decisions.  Here are a few reasons scenario planning should be part of your company’s process:

• Preparation for difficult circumstances internal and external to the company
• Research multiple ways to solve the problem
• Assess risk
• Benchmark against the best in your industry
• Challenge the status quo
• Back decisions with data
• Meet cross functional goals
• Foresee the future from different angles

Let’s take a look at the three phases and what questions each should evoke.

1. Proactive Identification
   • Assess the situation or circumstances that could potentially affect the business and the possible impacts— are there several or just one? How long might it go on? Is this event internal or external?
   • Review financial statements monthly and spend time with a financial expert to fully understand the What are your company’s financial risks as well as strengths? How healthy is your company’s cash flow if a crisis put the breaks on business for a few days or weeks?
   • Consider the responsibilities of the different players. Who will you appoint to own scenario
     planning for your organization? Even if you bring in outside help, you need an internal champion to carry the torch forward after your scenario planning Do you have a financial champion and strategic business advisor, such as a B2B CFO®, who will analyze numbers and scenario plans for revenue? Who will be responsible for executing specific action plans?
   • Set up a crisis communications network— prepare the messages you will share with your employees, stakeholders and customers and develop the plan to distribute

2. Understanding Capabilities
   • Factor in the economic situation— what are the market forces or industry trends right now? How is your competition responding? Help enable the evaluation of financial and operational trade-offs and opportunities associated with
   • Analyze your projections and numbers— what is your cashflow forecast, your burn rate, your monthly expenses? Do you have enough capital and are you making consistent revenue?
     If not, how might that affect how you respond?
   • Forecast the timing. How long will it take to the respond to the crisis and changes in production and sales it causes? Has management analyzed how long current staffing can be maintained considering various scenarios of changes in business volume?
3. Adjusting Accordingly
   • Once you have decided on a few scenarios to  plan for, focus  on  three  to  four  specific  factors or trends that might impact each one. Think about not only how your individual business is  affected, but what forces affect suppliers, customers, competitors, your employees, and shareholders?
   • Decide on strategy— if this event will come in waves and phases like the pandemic did, your team will have to prepare differently than if it’s a one-time event like a hurricane.
   • Choose which Key Performing Indicators to focus on at the given time— be sure to keep track and remain updated frequently how these are performing and whether your plan is making
   • Keep updating your scenarios and impacts, ensuring they represent an accurate forecast of the future— be sure to monitor your numbers and financial
   • Be appraised of the realistic timeframe it takes to deal with each
   • Review your completed scenarios, identify the strategies that show up in most or all of

These are solid options for your next actions and are considered reliable predictions of the future. These steps are just a start to get your company engaged in scenario planning. To achieve a successful outcome, scenario planning requires more than just following a methodology. It requires guiding people, from decision-makers to implementers, on a journey—one that expands their awareness of potential market change and gives them confidence  to  act  quickly  in  the  face of  uncertainty.

Importance of Scenario Planning

Scenario planning allows your business to constantly check itself as well as the external factors affecting its space in the market. By staying both aware and proactively ready for potential crises, your business will have the life jacket it needs to weather the storm.  Additionally, scenario planning allows business leaders to consider necessary decisions before they are in the thick of a storm. By thoughtfully assessing your cashflow, revenue, expenses and capital, you can develop a working plan to survive and keep your business afloat. By keeping up a mindset of future planning and resilience in tough times, you are giving your business the armor it needs.

Working with B2B CFO^®

While events out of our control may devastate some companies, it presents great opportunities for the well- prepared. For scenario planning to bring results,  seek insights and perspective from a range of voices—from in- and outside the company and industry.

No matter the scenario plan or the actual event that might occur, having a business advisor by your side makes all the difference. The diverse nature of B2B CFO®’s client base means we have the expertise to manage complex financial issues. Our Partners take great pride in helping to ensure our clients are always on track to achieve financial stability and business success. If you should have questions or need assistance, email, ArtBottoms@b2bcfo.com.