The economic scene can be very volatile and needs to be constantly monitored. We have seen over the past two years a big downturn in most industries and in fact countries standing in the economic community. In your planning you need to consider alternative economic scenarios.
One method of doing this is when planning use alternative examples to include, if required, changes of inflation, exchange rates, and interest rates into your cashflow forecasts to see what affect they have on both cash and profit. This is called a sensitivity analysis. If you need help with producing a cashflow forecast to include various scenarios please contact Kathryn@legworkms.com
So what areas do you need to consider:-
- What do the key indicators mean for your industry and company? What about inflation and interest rates?.
- What about the exchange rate? Do these impact on your competitors, customers or suppliers. One customer saw the dollar rate dropping from over 2 dollars to 1.47 dollars to the pound with the result of a 25% increase in costs alone.
- What are the unemployment levels like, nationally, in your area or if it is applicable globally? Do you have access to sufficient trained staff or will you have to budget for training costs?
- Does the movement of workers geographically between employers give rise to issues of housing etc?
- Who has the spending power now? Older or Younger People? Private or Public Institutions? With most of the government departments seeing huge cuts in their budgets the result issues for businesses. With the shutting down of some of the military instillations not only will there be immediate cuts but the effect on businesses in the area could be catastrophic.
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