Sensitivity testing
The y-axis in the Suns and Clouds chart specifies impact on cash flow, or impact on value. But the chart is looking only for relative impact, in the sense that one risk will have a greater impact than another.
But your backer may be interested in specific impact. They may want you to quantify one or more risks or opportunities, to put actual figures on them.
Indeed, you would be wise to pre-empt your backer’s question and prepare some quantified impacts in advance. This is sensitivity testing. You test the financial statements to see how they change in response to a specific risk or opportunity or a general adjustment.
This is easy to do, assuming you have built up your financial forecasts on Excel or with specialist software. ...
Get The FT Essential Guide to Writing a Business Plan, 3rd Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
