Business Plans: Worst Case Scenarios
Are you looking for business funding and only presenting the perfect day dream scenario to your potential lenders and investors? To be successful with the funding process, your business plan will also need to present the worst case scenario.
Lenders, bankers, and investors are aware of the issues facing the economy and how businesses will be trying to survive over the next few years. When you are pursuing business funding, provide your funding sources information that proves you have thoroughly thought out the worst case scenario the business will be faced with and how you will confront those issues. Skipping this step, or being vague, will not get you where you want to go.
Since a business plan is considered the roadmap to a business’s future, if you don’t have alternate routes planned, your business may be stopped by a single event that blocks the road to successful funding. Presenting the worst case and the solutions you will implement will make the business plan a stronger document that lenders and investors can have confidence in.
Business owners who fail to provide answers for potential setbacks and economic downturns simply have not completed their homework and they are not ready to present their business plan.
Investors see red flags when a business plan presents significant business growth in an industry that is not experiencing the same. Investors also have concerns if the only picture painted by the business owner is the rosy one.
If new technology is being used by the company, or other factors will advance the business profits beyond the norm, then documentation needs to be provided to support that argument. At the same time don’t fail to address the worst case issues if that new technology ends up with bugs.
Lenders and investors are looking for evidence that the business owner has thought through all the various challenges the business will be faced with and is prepared for the worst. A half baked plan won’t bring the money to the table. If the lender thinks the business will get stuck in the ditches with the first sign of trouble, they are not going to take the risk. To receive the funding you are seeking, prove you are prepared to weather the storms.
When developing the worst case scenario address higher operating costs, volatility of commodities used in your business, slower sales, new government regulations, healthcare costs, and less than optimal situations for every aspect of the business. You need to demonstrate to the lenders and investors that you have contingency plans and can handle the disruptions of normal business. When the economy or other things outside of your personal control sink other ships you need to show how you can keep your head above water.
Provide additional documentation as evidence how your contingency solutions will benefit both the company and the investor/lender. Show the expected time frame for implementing solutions and realistic expectations of how these solutions will keep the business a float.
Solutions need to be realistic. Blue sky contingencies will not provide the business plan any integrity. If you only show the perfect day dream without exposing the risks - where is the integrity of the plan?
How business conditions will possibly change over the next few years is a tough issue to address. It is easy to present a plan that shows clear sailing. It is harder to figure out solutions today for an unpredictable tomorrow. However, business owners who are serious about obtaining business funding will deal with presenting the additional information required for the worst case scenario.
Having contingency plans that can be implemented to keep the business from failing during drastic situations is an important step in the process - especially considering where the world economy is going to be for the next several years. Besides pleasing the lenders and investors the business owner will actually be more personally confident after developing a business plan that faces all the disasters, catastrophes, nightmares, set backs, delays, downturns, etc.
1. If you don’t have a plan for a worst case scenario, you are not ready to present your business plan.
2. Investors will dispose of a plan that does not present planning for the less than optimal situations.
3. Present 2 sets of financial statements: best case and worst case.
4. Solutions for contingencies should be reasonable and clearly stated.
5. Nothing in the future is certain. Therefore to receive the funding you desire you need to prove you are prepared for whatever the world throws at you.
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