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Understand why you should evaluate various financial scenarios for your company

Understand why you should evaluate various financial scenarios for your company

When we analyze the history of great corporations, we have access to the true lessons of entrepreneurship. Normally, we concentrate on the victories of these companies, but you’d better believe that their defeats are also instructive. One of the most common problems that businesses face is a lack of planning for various financial scenarios.

It may appear strange to believe that companies don’t take the care to think about various scenarios, but it isn’t uncommon. When business leaders talk about finances, they usually focus their attention on the short and medium term.

Even though it’s highly recommended to be worried about your accounts at the end of each month, you need to have a better prepared plan for your company. Would you like to understand more about this subject? Then enjoy your reading!

Pessimistic financial scenarios

It isn’t very pleasant to imagine, but what happens if the product or service you offer ceases to have practical value? How will you turn this situation around?

Kodak lived through something close to this dilemma, because it wasn’t prepared for a scenario in which photographic film rolls were no longer necessary. As a result, its sales sank and its market value did as well.

It’s very important for the businessperson to have an action plan ready for the day in which the company has to face a crisis. This is why you should select which of your investments can be liquidated to inject capital into your company, and should pay close attention to changes in your sector. That way, you won’t be caught by surprise.

Optimistic financial scenarios

Imagine that the government creates fiscal incentives that benefit your company. Now think about the possibility of seeing your sales margins increase a lot. How can your business best take advantage of this situation?

This scenario appears to be unreal, but many companies went through this exact experience when the Brazilian government reduced the Tax on Industrialized Products. It was a very positive scenario for the Brazilian economy.

However, many entrepreneurs didn’t take advantage of their increase in sales to do more marketing to strengthen their brands — which is something that would make consumers remember their brands in other economic situations.

Other companies didn’t evaluate the momentary nature of this reduction in taxes and believed that it would last forever, and chose to expand when they could have waited.

Based on this, you should plan to take advantage of positive moments for your sector, increasing your company’s revenues, investing in business improvements and strengthening your brand.

Realistic financial scenarios

If its market continues to grow by the same percentage for the next decade, how will this scenario affect your company’s strategy?

In this third scenario, it’s important to understand how stability will affect your business, but not just this. Evaluate your sector today, study your company’s data and think about how it would deal with each situation using its current resources.

To arrive at a good evaluation, it’s important to access data about your company’s processes in a rapid and reliable fashion. Management software that ensures a dynamic analysis is also crucial to projecting a realistic financial scenario.

Now that you understand a bit more about the importance of planning for various financial scenarios, you need to conduct these studies to protect your business from external market conditions.

One important tip is to modernize your company’s data analysis. MyABCM can help you in this mission. Get in contact with us and let us answer any questions you may have about this subject!