IF THE WORST COMES TO THE WORST … 281
The economy
Business people know only too well how recession can suddenly wipe out demand – and
suppliers or business partners. Remember to include an assessment of the effects of eco-
nomic developments in your business plan. If you are currently operating in a healthy
environment, demonstrate how your strategy will protect you when there is an economic
downturn. If you are struggling through depression, show how it is affecting your indus-
try and how you are positioned for the next boom. The whole point of the business plan
might be to obtain the funding that will get you through the bad times.
ARE BANKERS USEFUL AFTER ALL?
How vulnerable are you to changes in exchange rates or interest rates? Should you be
hedging? By this, I don’t mean avoiding the issue when in the bank manager’s office. I am
thinking of covering your bets if you trade overseas. For example, you have just signed
a contract for which you will be paid in Bangladeshi Taka or Kyrgyzstanian Som in three
months’ time. (No, I didn’t invent those names.) What will happen if those currencies go
through the floor in the tense intervening period? You can cover your risks by selling the
currencies forward. Your bankers will guarantee to buy a fixed amount from you at today’s
exchange rate plus a margin. The margin is essentially the difference between domestic
interest rates and those in Bangladesh or Kyrgyzstan – plus a handsome fee for the bank.
This replaces risk with certainty – so long as you really do get paid.
This is where export and import guarantees come in. You can arrange for your bankers
to act as intermediaries, guaranteeing that payment will be made on delivery of goods. It
is important to remember, however, that you can only hedge major currencies – there is
not a market in the more obscure ones.
If the worst comes to the worst …
A coconut falls off the tree. Will it hit you on the head and break, or will you sell it for
another five pesos? On your journey to the current point in this book, you have probably
found ways to turn many problems into advantages. You have built up a deeper under-
standing of the risks that assail your business and identified strategies to prepare for and
handle the worst. And perhaps most important, you will have quantified the likely impact
of being hit by curved balls. Your what-if summarised these in a neat little table.
Readers of your business plan also expect to see a worst-case forecast that shows what
would be the end result if all the worst possible things that could happen did happen.
I suggest that you make a copy of your central forecast, re-label one ‘worst-case’ and
then amend the assumptions to reflect your view of the gloomiest scenario. This will be
..................Content has been hidden....................
You can't read the all page of ebook, please click here login for view all page.