"A vaccine against fuzzy thinking" - John Doerr

This article is about implementing flexible scenario-based forecasting in the midst of uncertainty.

It’s dedicated to the business owners, division managers, and chief financial officers who must make tough decisions right now, to lead their organizations through uncharted waters - typically with incomplete and imperfect information.

The DEFCON* approach as applied to Finance can be summarized in three steps:

STAGE 1: Confront Reality - Quickly get real by envisioning your worst realistic scenario. Calculate your baseline by adding up all cash reserves and short term assets, then subtract your committed expenses and liabilities. Next, identify cash preservation or cash augmentation measures you can take (these can be lines of credit, other forms of financing, or terminating non essentials). Acknowledge your situation, take a moment for negative feelings, but don’t dip into despair. Timing is important. Facing reality early gives more time to carve pathways forward. 

STAGE 2: Brainstorm (im)possibilities -  Quickly transition into understanding your position and explore / quantify possible paths forward. Distinguish between what you can and can NOT control. Develop multiple scenarios starting from your baseline. Use flexibility and rich creativity to develop those scenarios with the best potential to improve your cash runway. Here especially, having an experienced CFO/ Controller or CEO mentor to guide you in this process, and flexible tools to support you, will be essential for success. 

Explore with an open mind what your opportunities are to meet the pressing needs of your stakeholders while preserving or augmenting cash. Tweak your drivers and assumptions up & down, on & off, top down & bottom up. For each scenario, measure your cash runway. For example, simulate pushing some product lines or geographies up or down; assess whether you can make it with or without certain essential expenses; assess the possibility of shifting or tweaking investments. At all stages, communicate and collaborate intensely internally / externally to learn from your stakeholders what is most and least valuable or feasible for them. 

This does not have to be a long drawn out process; however do not stop developing different scenarios until you start seeing a clearer picture emerging of possible landings. This is an essential skill to hone, including when your business is small.