7. Build Resilience Before You Need It - Stress-Testing Your Business Model
Scenario planning and risk analysis for worst-case and best-case environments
1. Introduction
Resilience isn’t just about grit, it’s about preparation. Many SME owners only find out how vulnerable their business is when they’re already in trouble. A sudden drop in revenue, supplier delay or loss of a major client can hit harder than expected when assumptions go unchecked.
This article is part of Pillar 2 - Protecting Your Business. It focuses on how to stress-test your business model by running realistic scenarios. The aim is not to create fear, but to build clarity. With a few simple exercises, you can uncover risks and plan with confidence - before you need to.
2. Representative Narrative
Andre runs a specialty food manufacturing business just outside Palmerston North. He supplies boutique retailers and restaurants across the lower North Island. His margins are decent and cash flow steady, but recently, he started to feel exposed.
A competitor had just gone under due to a sudden loss of shelf space in two national retailers. Andre began to wonder - if his biggest wholesale customer pulled out, what would happen?
He called John Luxton, an advisor from RegenerationHQ who had worked with his local business network. John introduced the idea of scenario planning. “It’s not about predicting disaster,” John said. “It’s about making sure that if the storm hits, you know where the leaks might be.”
3. Recommended Actions
Identify your key business risks
Look at customer concentration, supplier reliance, key staff, revenue diversity and regulatory changes. What are the single points of failure?Map two scenarios - one tough, one positive
Create a basic forecast for two contrasting 3-month situations -A worst-case - 25–30 percent revenue drop
A best-case - 20 percent spike in demand
List your responses in each case
For each scenario, list 3–5 actions you would take. These might include cost reductions, hiring plans, sourcing alternatives or working capital adjustments.Test how much flexibility you have
Can you shift costs quickly? Do you have access to a credit buffer? Could you service a short spike without damaging quality?Use your own numbers, not just gut feeling
Run cash flow and margin scenarios using your actual figures. Even rough estimates will reveal weak points.
4. Expected Outcomes as Narrative
Andre and John created two three-month models using his sales and expense data. In the tough scenario, his largest buyer cancelled orders. Andre saw how quickly his cash buffer would shrink without immediate action. They listed three moves - halting discretionary spend, contacting the bank early and shifting part of his sales team to direct B2C promotion.
In the positive scenario, where demand surged unexpectedly, they identified capacity constraints in packaging and freight. Without planning, growth could have caused more damage than the downturn.
Andre now runs these two scenarios every quarter. The process takes an hour but gives him confidence that his decisions are grounded, not reactive.
5. Red Flags & Mitigating Strategies
Red Flag 1 - Assuming stability will continue because things feel fine now
Mitigation - Run scenario checks quarterly, not just during crisis
Red Flag 2 - Relying on a single customer or supplier for core revenue or materials
Mitigation - Start diversifying or building redundancy slowly
Red Flag 3 - Not knowing your breakeven point
Mitigation - Calculate fixed costs vs revenue needed to stay above water
6. HR Best Practice
Resilience planning includes people. If a downturn hits, staff are often affected first. Don’t wait until pressure builds. Prepare -
Document key roles and their backups
Train across roles to give more flexibility
Share scenario thinking at a high level so staff understand priorities
Create a plan for communicating clearly during a shift in conditions
As John often tells owners, “A resilient team is not one that never faces change, it’s one that understands what change means and how to meet it together.”
7. Psychological Perspective
Fear often makes business owners avoid thinking about worst-case scenarios. It’s understandable. But avoidance builds fragility. Clarity, even when it’s uncomfortable, creates strength.
By walking through the numbers in advance, stress becomes smaller and decisions clearer. John encourages owners to see scenario planning as mental insurance, not doom thinking.
8. Recommended Owner's Mindset
Lead with proactive clarity. Planning for hard times doesn’t mean expecting failure. It means believing your business deserves to be prepared. Resilience is not luck. It’s design.
9. Reflective Questions for the Owner
What would happen if I lost my top customer tomorrow?
If demand spiked by 30 percent, could I meet it without breaking quality or team morale?
What does it cost me to run each month before I make a dollar?
Do I have access to funds if cash flow tightens unexpectedly?
Who do I speak to when I need to talk through uncomfortable possibilities?
10. Suggested Ongoing Actions
Build and review a 3-month worst-case and best-case plan every quarter
Hold one resilience-focused team meeting each year
Identify your top three business dependencies and review alternatives
Keep a record of decisions to revisit if risk events occur
Schedule a check-in with a business advisor like John Luxton to walk through your latest risk profile
Critical Takeaway - Resilience is not built in a crisis - it’s built in the choices you make before one arrives.
If you’d like a confidential, free of charge, free of obligation conversation about your business, here’s how to get me.
📞 Phone +64 275 665 682
✉️ Email john.luxton@regenerationhq.co.nz
🌐 Contact Form www.regenerationhq.co.nz/contact
If you’d like to read more RegenerationHQ thinking on SME business and other things, go here – www.regenerationhq.co.nz/articlesoverview
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Supporting NZ SME Owners to Exit Well, Lead Better and Build Business Value.