Exploring future scenarios is one of the best ways of feeling in control of your agency’s finances. Seeing the impact different events would have on your revenue and profitability reduces uncertainty and allows you to develop robust plans to manage them.

For example, what would you need to do if you won a big new client later in your financial year? Or lost an existing client? Both situations can be challenging in different ways, and giving each some thought ahead of time can help to minimise disruption.

A word of warning around scenario planning – be careful how pessimistic or optimistic you are in your scenarios. You’re aiming to understand the impact of the most likely range of potential outcomes, not the literal worst or best possible cases. Go too far in either direction and you’ll just be increasing your anxiety for no benefit.

Now here’s how to plan your scenarios:

1) Start with your dashboard

I’ve written previously about creating a financial dashboard to track your agency’s performance. You want to create your scenarios within this dashboard. As ever, there are lots of different ways of doing this. The easiest is to just manually adjust the numbers in the forecast section of your dashboard. You might want to do this in a duplicated tab, so that your main dashboard remains unchanged. You could even create a different tab per scenario so that you can easily compare them.

2) Adjust your revenue

The first adjustment to make is to your revenue. What happens to this in your scenario? Make adjustments either up or down, based on the event you want to plan. If you’re keen to see the impact of a big new client win, add revenue to the relevant future months in the income section of your dashboard. Do the opposite if you’re exploring the loss of a key contract. If your dashboard is set up properly, you should immediately be able to see the impact in your profit and margin figures.

3) Adjust your outgoings

Now you want to adjust your outgoings based on what’s happening in your scenario. A big client win might lead to some new hires or additional contractor costs. Or you might want to just see the impact of recruiting a new senior leader to support you as you grow your agency. Just adjust the relevant costs in your tracker accordingly (not forgetting to include things like national insurance and pension contributions where applicable). 

4) Make your plans

Once your scenario is ready, with all changes made to revenue and outgoings, you can review the resulting numbers and key metrics and start thinking about how you’d manage the situation. Be sure to look at the impact on each month of your forecast as well as the whole financial year. If the changes you’ve made in your scenario mean you’d be making a loss for a number of months at the end of your financial year, it’s possible the overall year profit and margin figures might still look relatively OK. But the month-by-month figures will tell you what you need to know.

Once you’ve planned a few different scenarios and are comfortable with the process, it’ll be one of your most important tools for feeling in control of your finances and confident in managing your agency.

Paul Muggeridge-Breene is an exited agency founder, qualified accountant, former international journalist and a member of the British Psychological Society. Please get in touch if you’d like to discuss how Thrive can help you.