In a difficult situation, it is easy to focus on one solution and let it shape every subsequent decision. Comparing several scenarios helps you check which assumptions are realistic and which implications need to be considered. Not every course of action will be available to every company.
Start with a common set of information
Every option should be based on the same picture of the business: its liability structure, available funds, key contracts, resources and current performance. If each option uses different estimates, the comparison tells you little. Identify uncertain information and agree how to verify it.
Define the objective and constraints
Specify what the next steps should achieve: preserving a profitable part of the business, changing the business model, organising liabilities or assessing whether to cease trading. Check the constraints arising from financing, contracts, resources and the legal situation. The owners' objectives are not the only consideration; the effects on creditors, employees and management also matter.
Compare the options using the same criteria
- Feasibility: which conditions must be met and who can influence them?
- Financing: what funds are needed and what supports the forecast income?
- Operations: which resources, contracts and relationships remain necessary?
- Implications: what changes affect the company, creditors, employees and management?
- Risk: what could change the assessment of an option and when should the decision be revisited?
Describe both the costs of moving to a new option and the costs of continued operations. Check whether the forecast allows for less favourable events. An option that is feasible only if several optimistic assumptions all hold requires particular attention.
Distinguish business assessment from legal assessment
An economically attractive option may require legal conditions to be met, consents to be obtained or specific formal steps to be taken. Equally, the availability of a procedure does not determine whether it suits the company's business realities. Both perspectives should be brought together after reviewing the documents and current circumstances.
If bankruptcy is being considered, its grounds, consequences and any duties of management must be assessed individually. A general guide cannot establish which actions are required or the applicable deadlines in a specific case. Do not delay seeking a professional assessment if the situation raises these concerns.
Record the decision and when to reassess it
After comparing the options, record why a particular direction was chosen, which information supported the decision and which issues remain unresolved. Set review points, such as obtaining information, confirming financing, the outcome of discussions or a revised forecast. This makes it clear when to continue the plan and when to reconsider alternatives.
Comparing scenarios does not remove uncertainty. It helps you make informed decisions with an understanding of dependencies and consequences, rather than being guided by the name of a solution or the expectation of a quick recovery.
This material provides general information. Assessing a company's situation and choosing a course of action require an individual review of its documents and the current law.
