Rescue Part 3: Stress Test Your Financials by asking “What-If?”

Asking the Right Questions

There are so many questions we are all asking ourselves in these uncertain and rapidly changing times. So often our actions and decisions are dictated by the questions running through our head at any given moment, and the reaction we then have to those narratives. Taking stock of which questions are the right ones to structure a plan around becomes even more important during times of uncertainty. While the answers may not always avail themselves quickly, Peter Drucker says it best, “The most serious mistakes are not being made as a result of wrong answers. The true dangerous thing is asking the wrong question.’”

We are firm believers in asking the right questions before the unexpected happens. The simple yet powerful framework of Assess, Analyze, and Execute, when combined with some easy to use tools ensure we are making decisions proactively, from a place of strength, and driven by data:

  • Analyze: How significantly will my company need to change under improbable circumstances?
  • Execute: What decisions will I need to make if the improbable happens, and when will I know that it is the right time to make the decisions?

Assess: Get Uncomfortable with the Possibilities

Understanding what might happen under stressful conditions requires some parameters to help set up what we call a financial stress test. The key question in the assessment process is “In an improbable but not impossible crisis, what will happen to our revenue and cash?” We ask clients to focus on revenue and cash without touching the expenses structure, so that they can get a perspective of “if we change nothing, this is what it would look like”. 

Without fail, every time we put pen to paper with our clients, at this point hearts start to race and the fear becomes real as they watch what could happen on paper. It’s a great reminder as you start this process to remember that raising your awareness through the assessment phase is the first step to making sure it never happens in the first place.

Analyze: Change and Flexibility

If you start to see the signs of a stressful situation coming, how much does your organization need to change? Would you be able to survive with your current cash and access to reserves? Would drastic action need to be taken quickly? Using a financial stress test to ask these questions gives us a logical way to understand the level of change needed, and prepare ourselves to make hard changes. We’ve included a simplified version of our stress test here so that you can take these steps along the way!

In our next post it’s all about using this information to create your plan, make decisions, and get ready to move confidently into the future. Don’t forget to download the financial stress test template here!

Ready to discover and carve your path forward?

Let’s get to the view at the top together. A conversation is the first step to clarity, so let’s chat.

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