Planning in a pandemic: How small business owners can prepare for the unexpected
By Alexander Carbone
How do scenarios help you plan ahead?
Uncertainty is inherent to scenarios. In normal times, it’s possible for small business owners who are knowledgeable about their markets to make forecasts for the future – what their sales will be, what costs will be and what cash will be left at the end of the day.
While it’s possible to have a relatively small margin of error, perhaps greater or less than 10-20 percent on your original estimates, it’s fairly easy to forecast for your business when you’ve had experience in the industry for a number of years.
When things don’t go according to plan, it’s probably due to highly unusual events – the unexpected loss of a customer, website downtime or a production delay from a supplier. While these “unknowns” do happen, they are as we say “known unknowns” – you don’t know the magnitude of the impact up front, but you’re aware that they may happen.
Enter COVID-19, and the era of “unknown unknowns” – unexpected events you cannot anticipate, because to a large extent, they have never happened to you (or perhaps anyone else) before. Did you anticipate a total shutdown of all non-essential businesses at this time last year? How about a closure of major international borders? Unfortunately, it’s virtually impossible to prepare for these events, and scenario-based planning does not claim to fully account for all these factors. However, scenarios recognize that uncertainly is inherent to our day-to-day lives, and therefore, our businesses.
How can you get started with scenarios and how can they help your business now?
Envision a range of options that could occur
Perhaps you’ve expected the economy to re-open on May 1 or June 1, for example. This is a vital topic for small businesses that rely on a physical, retail presence. Unfortunately, this may have led to all of your business planning – particularly cash flow planning – being conducted with these assumptions in mind. It’s critical to first envision the full spectrum of what could possibly occur. For example, what if:
- The economy stays closed until July 1, August 1, or September 1?
- Non-essential retail businesses remain closed until 2021, with the government focusing on how to get all essential services back at “full capacity” first
- There is a second resurgence of COVID-19 that leads to another round of closures later in the year or next year
It’s difficult to predict the future during these changing times, but considering all scenarios you can think of – best case and worst case – is the first step to effective small business management.
Build your strategy and plans with scenarios
If you’re forecasting your cash flow, you probably need to know when you can return to “normal.” You’ve probably made some assumptions around what this looks like – normal might be “as is was before COVID-19” and predicated on a specific date. However, this type of planning can be short-sighted, and lead to a single scenario based on a set of assumptions that are subject to change.
Instead, consider building uncertainties into the way you plan. Maybe you will say “I have four versions of cash flow possibilities – one for when the economy fully opens on June 1, one for when it opens August 1, one for when it opens October 1, and one for which I need to switch all my distribution online because closures are in place for the foreseeable future.” As you review your list, you may feel there are some extreme options. However, it’s critical you look at this range of outcomes. By looking only at a single scenario, you may not be prompted, for example, to explore investing in an online channel (if that is a possibility for your business). However, by looking at all of them, you may notice that your current strategy has you well-covered in some scenarios, and less so in others. You may decide to hedge your risks and invest in that channel anyways.
It’s also important to recognize that some scenarios won’t come true. That’s part of scenario planning and making sure you’re prepared for a range of outcomes. You should prepare for the “worst-case” with at least a list of actions you would take if it became true. That way, if the worst-case unfolds, you are prepared with a clear action plan for your business.
Make decisions with agility
We will focus on this more in another article, but in times of uncertainty, you cannot fall victim to “analysis paralysis” – taking so long to make a decision (typically based on a desire to get all of the information possible) that you miss an opportunity or position your business worse off than when started.
A realistic approach to scenario planning makes sure you have the motivation to act swiftly to manage some uncertainties that are more severe than others. This may help you mitigate poor outcomes for your business, or even take advantage of opportunities. Using a scenario planning approach to small business management can make an important difference to more positive outcomes in uncertain times.
As important as it is to make decisions quickly – and informed by research and facts, of course – it’s also important to keep updating your scenarios regularly as new information becomes available. When May 1 passes and your business is still required to be closed, you can exclude a May 1 opening from your list of scenarios and reevaluate your plan forward. Making this a part of your everyday planning is important.
As a small business owner, you don’t have to do this planning alone. Working with a business coach is an important way in which you can work through challenges, adapt and innovate. If you’re an ACCESS client, we have a dedicated team of coaches who are here to help.
The ACCESS webinar series is also a great way to gather insight on adapting and innovating during COVID-19. You can learn more about the webinar series here.
Alexander Carbone, Engagement Manager at Monitor Deloitte, is an ACCESS Leadership volunteer team lead and Loan Review Committee member. Alexander is no stranger to volunteering. He is involved with Junior Achievement, which fosters financial literacy in young people and prepares them for career success. He also started his own non-profit, Toronto Professionals’ Volunteer Hub, to connect young professionals with meaningful volunteer opportunities.