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Take clients from compliance to scenario planning in five steps

Scenario planning helps your clients imagine different environments or realities in the future, guiding the plans and decisions your clients make.

Business owners would much rather chat with you about their goals for the future instead of their balance sheet. Your clients want to achieve these hopes and ambitions, and who better to help them along the way than their accountant? Scenario planning is therefore a great way to get the ball rolling and making these dreams possible by creating a clear vision for the future with easily digestible data and visuals.

Be more than just a regular compliance or tax service. Here’s a five-step approach to engage your client in scenario planning.

Step One: You need to understand why scenario planning is the best thing going

Scenario planning is all about making life simple. As individuals, we make thousands of decisions every single day.

From the moment we wake up, to the moment we fall asleep, our lives are filled with many tiny decisions. Get up or lie in? Coffee or tea? Bus or walk? Work out or watch Gogglebox? The grand sum of these decisions defines the character of the life we live… Stay with me now… Businesses are the same.

Every little decision that your clients make contributes to the way in which their businesses are run.

In business, as in life, we make the best decisions when we know what the outcome will be.

There is value in investing a little bit of time to work out the different decisions we can make and how they may affect us. When we consider the different outcomes of clients’ decisions, they become less loaded with jeopardy. You won’t be able to foresee the future, but you can make informed predictions about your clients’ scenarios.

Step Two: Where is your client right now?

Before anything else, you and your client need to understand where they are right now. Take one of your usual scheduled meetings to take stock of their full financial situation.

By all means, get to grips with their P&L, Balance sheet, and cash flow, but also be sure to ask how they feel about their business as a whole. Find out about their non-financial information too. How does the business operate? How does the team work together? How do the business owners motivate their staff? What hours are staff working? Does your client seem happy or at their wits end?

Step Three: What are your client’s ambitions?

This is a question your clients are asked surprisingly little. Just straight up ask them… What are your ambitions? What do you want from this company? What would you like this business to look like in a year’s time?

It’s likely that they have gotten so bogged down in the minutiae that they haven’t thought about this for a while… maybe even since they started their business. If we spend our working days just putting out fires it can be hard to see what it is that we are actually working for. You need to define what your clients’ goals are, this provides focus for both your client and you.

Seneca said it better… “Let all your efforts be directed to something, let it keep that end in view. It’s not activity that disturbs people, but false conceptions of things that drive them mad.”

Before you have even started work on scenario planning, this is great information to have for both you and the business owner. Setting goals is integral to good business. Having a goal in mind is no guarantee that your clients will reach it, but not having a goal in mind will guarantee that they won’t!

Step Four: If we carry on exactly as we are where does that lead us?

Our friends at accountancy practice Accounts and Legal had a client that, at the start of the year, was turning over £500,000 and making £200,000 in profit. A year later they had DOUBLED their turnover, but their profit had dropped by 25% to £150,000.

The owners had gone from working 35 hours a week to over 70. They were stressed, overworked, chasing their turnover, and overtrading.

The team at Accounts and Legal ran their numbers… If they carried on, they would eventually run out of cash and go broke.

Their situation was not sustainable. The client wanted to make changes to avoid failure at all costs.

This is an extreme scenario, but it was the spark that initiated change. When you sit down with your clients you should show them what will happen if they continue the way that they are going. Are they happy with that scenario?

To run the best and quickest forecasts turn to technology. Run your clients’ Quickbooks Online, Sage or Xero ledger through Futrli for accurate three-year forecasts. You will be able to clearly show your client the direction of their company. Futrli lets you put your feet up while it runs your clients’ financials through its algorithms.

It’s very likely that the direction of your client’s business is not in keeping with their ideal scenario, they will see that things need to change to achieve their goals.

Step Five: Let’s run some scenarios

You know where your clients are. You know what they want. And now you know where they are heading. Understanding these three important pieces of information should act as a catalyst to speed you on your way to running some scenarios to achieve their goals.

You can also run scenarios to help mitigate any situations that could pose challenges to these aspirations.

  • What if you lose your biggest client?
  • What if prices rise by X%?
  • What if you can’t collect receivables within X days?
  • What if you can collect them within X days?
  • What if you need to lower prices by X% because of competition?
  • What if you increase selling prices by X% due to e.g. new product development and decrease the volume of sales by X%?

These what-if scenarios are more specific and consider business variables that can be modelled and measured.

With the end goal in sight, show your client the informed decisions that move them closer to that goal. Does your client need to change their pricing now to be able to afford that bigger office next year? How does expanding their staff affect their cash flow?

While scenarios can be run in Excel, it is a time-consuming process. Cut to the chase and use forecasting software and dashboards to consider scenarios that show results as clearly as possible. Remember, your need software that is scalable, saves you time, is easy to onboard, and makes sense to your clients. Futrli is the seamless aid that will help improve your scenario planning offering. Have real-time data, reporting, and three-year forecasting at your fingertips to help make your clients aspirations reality.

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