The price of diesel hit record highs in the UK, as recent RAC data revealed the average price topped two pounds per litre for the first time.
With threats of oil embargoes and the possibility of further price rises, the G7 leaders met to agree the release of 100 million barrels of oil and diesel from reserves.
UK businesses continue to feel the impacts of the high fuel prices, which directly impact overheads, profit margins and cash flow.
The announcement may provide some relief, but price drops may remain short-lived as supplies remain heavily suppressed by geopolitical tensions.
While prices may begin to ease, businesses should implement ongoing scenario planning to build resilience and prepare for future price shocks.
How can scenario planning help your business?
Just as no one can predict the future, no one can predict the price of fuel. A new conflict, supply chain issue or export ban can all trigger prices to surge, leaving businesses to pick up the pieces.
You may not have access to a crystal ball, but you can put plans in place for potential outcomes.
Scenario planning is a method to map out several possible futures, while planning how each should be responded to.
By exploring multiple potential outcomes and preparing for them in advance, you can minimise risk and stay resilient throughout uncertainty.
Scenario planning often happens in five steps:
Scenario plans are often reviewed monthly and when there is a major change, such as fuel prices rising, borrowing costs increasing or losing a major client.
As rising costs can quickly eat the margins of SMEs, there is less room for error. Planning can act as a lifeline, giving you more time to respond, not impulsively react.
Why should you hire an accountant?
To answer those what-if questions, an accountant can help provide the numbers needed to help you plan.
When potential scenarios have been identified, accountants can translate uncertainties into data modelling and stress-testing.
Using fuel prices as an example, financial professionals can help to forecast impacts on operating costs and profitability to help see where the breaking points of your business are.
This might include testing how long a business could endure higher costs before prices need to rise or finding out which services or products become unprofitable.
As one of the biggest risks SMEs face during periods of uncertainty is a shortage of cash, accountants can help create rolling cash flow forecasts and budgets.
With fuel prices remaining volatile and uncertainty becoming more commonplace, scenario planning can help you remain resilient to further cost increases.
