If you are an owner of a UK-based company, chances are you may be spending your summer days worrying if things will take a downturn this autumn. If this is the case, it may be the time to do some scenario planning.
Even if you don’t employ others, but you have a number of associates that rely on the work you farm out to them, you may still find it beneficial.
You may think that you will not be affected by what happens on 31st October because your market is stable, your products or services do not depend on imports and you work predominantly in the UK.
But – did you struggle at the beginning of the year, prior to the 29th March deadline? This is the test I use to check how susceptible my clients’ businesses are to what is coming. If the answer is yes, it’s likely that you will struggle again, and the spring was just a preview. If, on the contrary, you are one of those businesses that went up during the spring uncertainty, congratulations – you may stop reading now and book yourself a long holiday instead. A lot of work may be coming your way this autumn and you want to be fresh and rested to handle it.
For anyone else, let’s assume that things are starting to go downwards as of September this year.
So, how can you get ready?
1. Make detailed monthly projections and calculate your monthly breakeven
It may seem obvious, but you would be amazed how many companies do not do any kind of serious projections aside from a mental target of growth. The back-of-an-envelope approach, loosely tied to a year-end dream, has led many a business into trouble time and time again. When you use dreaming instead of realistic projections you start spending on that basis, and soon enough you get into trouble.
You should project client by client, month by month. Look at the pattern of monthly revenue last year, to take account of it this year. Then calculate breakeven points so you know when to consider readjusting drastically.
2. Scenario 1 – Project using the last recession or a 50% drop in revenue
Review what happened to your business in 2009 and 2010. Look at the percentage of drop in revenue year on year. Apply that drop to your current revenue – what would it look like? What would you need to do if that happened?
If your business is new and you had no experience of the recession years, calculate what would happen if 50% of your revenue disappeared. We saw drops as high as 70% and as low as 20% of revenue, so 50% is a good average to give you an idea and get you mentally ready for a big change.
3. Scenario 2 – Project applying the drop to your big accounts
Project your downturn scenario again by assuming the drop comes from losing your big clients rather than overall. Big clients are those who give you more than 20% of revenue in the year so that if they suddenly drop, they take away a big chunk. Scary, I know, but useful to stare at it now rather than at the damage later. Calculate what would happen if they disappear completely. What are you left with? If you don’t have such clients, well done – you have minimised an important risk.
4. Postpone new launches to January 2020
Don’t cancel. But consider postponing your new service or product launch to next year. With a shrinking economy, the market may not be ready to take up new things now. Chances are that if you launch it, you may get the wrong message and think it is your problem. When, in fact, it is just a temporary glitch. Stay ready by ring-fencing some cash for your project so that, if nothing bad happens, you can hit the launch button even earlier than January 2020.
5. Use past actuals within future projections to constantly see a realistic end point
This is the time for a month-by-month review of the future, from a budgeting point of view. Assuming you made a projection at the beginning of the year (January), well done, but stop using those figures for months that have closed. Instead, if you use the actuals for the past 7 months and add in the future projection for a downturn scenario, you will have a more realistic end point for this year.
Panic is futile. Planning is king.
Plan for the worst. And assume that you will not recover the level projected at the beginning of the year. If that doesn’t end up happening, you can sit back and enjoy! You will have a very useful surplus to spend later, when things get clearer and stability returns.
How can Profitable Insights help?
If you found this article interesting and would like to find out more about what we do, please email us on firstname.lastname@example.org. And if you have other ideas or if you actually do something different to plan for this autumn, do let us know. We would love to hear from you and share with others.