07/04/2011

By Giles Murphy, Head Of Assurance And Business Services At Smith & Williamson

With the worst of the deepest, most abrupt recession in living memory now behind us, businesses that have survived should be more confident about their futures. But what future have they survived into and what shape are they currently in?

There is still plenty of uncertainty about where the UK and global economies are heading. This creates challenges for every business, but particularly for those with low visibility around order or income levels over the next few months, let alone years.

Prior to the recession, we experienced a period of sustained economic growth. While this posed different issues for management, these were addressed in a period of much greater certainty. Any unexpected downturn in performance was often considered to be a 'blip' that could be accommodated. Following the recession, most businesses have become leaner in terms of personnel and funding. That means they may be far less resilient to any future uncertainties or 'blips'.

Most entrepreneurs will have been spending a lot of 'thinking time', mulling over the direction of their businesses. But these thoughts are rarely shared with other members of the team, are often unstructured and rarely documented.

To enable your business to respond promptly and rationally to any future 'blips', it will pay to have a plan in place. In order to achieve this, well run businesses see the benefit of scenario planning – where they consider a range of possible scenarios, based around what they consider to be their key risks. Examples might include the loss of a key customer, the withdrawal of bank funding, the departure of a key team member, or cash balances falling below an acceptable level.

Whether facilitated by an external party or not, your management team should discuss and agree on their responses to each scenario and agree on the actions you would take.

This is not an overnight task – the time required will depend on the nature of the business and the risks involved – but if one of the scenarios becomes reality, you’ll be in a position to put your plan into action in a prompt, calm and effective manner.

If you would like to discuss scenario planning with an impartial third party, talk to Giles Murphy on 020 7131 4369 or email him at giles.murphy@smith.williamson.co.uk

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