Small businesses are at the highest risk at difficult times. Sales are shrinking rapidly and clients are postponing payments. While the big businesses can still offer discounts and keep their sales level at a more or less regular cycle, the small business often, find themselves struggling to survive. A small business that deals with luxury or lifestyle products, can find itself completely frozen during bad financial times.
Small business owners, have to be very much in touch with the finances. Business finances need to be the first priority of your business. We realise many people don’t like dealing with it or “talking numbers”, but things like quoting right, balancing cash-flow and financial forecasts are crucial no less.
But what happens if you have in fact done all this, but the economic climate is tough and the volatility of your income is threatening your business?
The best way to tackle the situation, is to prepare for it. Any small business, in our opinion need to conduct something called “Scenario Analysis” also known as a “What-if” analysis. If conducted properly and timely, it will give you a good idea in anticipating the changes in the business profit in case sales drop or, the business is facing a big expense. It will also eliminate the element of surprise.
This type of analysis, is a very useful tool that is not very difficult to do. The idea is , that the less room for surprises the better. Psychologically, if you are well prepared and know what to expect even if the sales drop drastically, you will still be in a better situation and state of mind than your competitors.
Scenario analysis, forces the business owner to be proactive , it enables the owner to think clearly and calmly and come up with creative and preemptive measures to tackle any future financial hardships.
Any small business has faced changing conditions. Suppliers raising prices of a main product for your business, a big client that stopped doing business with you,a bank loan that didn’t clear.
The idea is to create 3 scenarios. Pessimistic, Base and Optimistic. These scenraios will be the indicators of your business financial health especially during volatile times.
Here is a link to a you-tube video that explains how to do the sensitivity analysis using Excel.
Added by iQDesk Ltd.