Are you building your business based on unchallenged assumptions? Don’t be blindsided and left without a plan for change of assumptions, change of circumstances.
If you asked a room full of entrepreneurs, how long before your business would make money, you would get drastically different answers. One thing for sure, building a business is a lot of hard work and very few grasp how much before actually going through the journey. Hence, planning must be part of it.
Have you build your initial business plan. What do you think of the current predictions that there might be a recession coming, combined with uncertain geopolitical environment. What will be the impact on your Company. “What’s out: Mild recession,” states new economic research released by Bank of America. “What’s in: Soft landing, no recession,” the firm’s research declares.
Economists and other experts have been calling for a downturn for a more than a year now, mostly due to high inflation and the steps policymakers have been taking to curb it. Officially, a downturn is defined as defined as a decline in gross domestic product for two consecutive quarters.
As the Federal Reserve followed by the GCC central banks, have all embarked on a series of interest rate hikes to bring inflation down to acceptable target levels, the concern has been that it may tip the economy into a recession.
1. Cooling inflation, is it really?
We have all been standing at the check-out counter after shopping at a grocery supermarket looking at the bill and thinking, why is it so expensive!
Blaming high inflation, which has prompted increased prices on everyday items we consume is the right assumption to make. As inflation increases, people tend to be more pessimistic in general and may watch their finances more. Is your business affected by this sentiment?
For example, if the average family has to put more money towards rent and basic groceries, perhaps there will be limited additional spending that could be going to your offering. Have you factored that into your projections?
2. Geopolitical uncertainty?
MENA and GCC areas have a long history of dealing with geopolitical uncertainty. You must however ask yourself if that may impact your particular business and how. For example, uncertainty can bring recession which may in turn impact your business. As an entrepreneurs, as you build your business plan and your projected cash flow, you must ask yourself the question "what does it mean for me".
Take an educated guess as to the impact on your client base and appetite for your product. Create scenarios and land on a base case that would appear to align with the overall view of the market. The most optimistic MENA and GCC outcome still has to consider unpredictable circumstances that may come as a surprise — that are difficult to precisely forecast.
If that was to materialise, how can you bolster your emergency savings while looking to achieve other financial goals to meet your Company liabilities.
3. Now is the time to lock in the prediction
You understand your business well. You have performed a scenario analysis of the macro-economic environment and areas not "dependent" on you, and you now feel comfortable with your assumptions and cash flow forecast.
The next step is to get a set of fresh eyes to review it and provide you with feedback. You are now left with a plan where a change of assumptions, a change of circumstances is possible and your projected cash flow is providing with some clarity. So, How Long Before Your Business Makes Money?
Come and join us in our monthly round tables to discuss your findings and meet others that may be going through the same challenges.
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