Perform Worst-Case Scenario Analysis Regularly

by Craig Anthony

1 min read

Worst-case scenario analysis simply refers to imagining worst-case scenarios and how they may affect your business or investments. To explain, imagine the city plans to do construction work on the road directly in front of your shop, and you aren’t sure how that may affect your business. To ensure you’re ready for anything, you do a worst-case scenario analysis where you imagine revenues dropping by 90%. This analysis will give you an idea of the cash reserves you would need to get through this scenario. Businesses and investors often perform best, base, and worst-case scenarios analyses on their companies or investment portfolios. Then, they use these analyses to prepare for various outcomes. For example, a business may make a plan to expand if the best-case scenario occurs, but they may also make a plan to scale back on employees if a worst-case scenario occurs. As a small business owner, you should do worst-case scenario analysis on a regular basis. That can help you create contingency plans and identify how much savings you need to get through various disasters. Identifying and planning for risks through worst-case scenario analysis can help you steer your business through rough patches with a minimum of damage.

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