How Would Your Business Respond to a 20% Fall in Revenue?

Most businesses spend plenty of time thinking about growth but only a few have a clear plan for what they would do if revenue suddenly fell. 

That’s understandable. When business is going well, preparing for a significant downturn can feel unnecessarily pessimistic. But working through the scenario before there is a problem gives you time to understand where the pressure points are and what options you would have. 

You don’t need a detailed crisis plan sitting on the shelf. Start with five practical questions. 

1.What would a 20% fall in revenue actually mean for the business?

The first step is to understand the impact. 

Model what would happen if revenue fell by 20% and remained at that level for a period. What would happen to profitability and cash flow? How much flexibility would you have before more significant decisions were required? 

The objective isn’t to predict a downturn. It’s to understand how resilient the business is and where pressure would emerge first. 

A simple stress test can help identify vulnerabilities early and give management time to consider how they could be addressed. This can form part of broader business advisory and planning.

2. Which costs could you reduce without weakening the business?

Not every cost should be treated the same way when conditions tighten. 

Some expenses can be reduced quickly with relatively little impact. Others are contractual or central to the way the business operates. Cutting too deeply in the wrong areas can create problems that last well beyond a temporary downturn. 

It can help to understand your costs in three broad groups: 

• Discretionary costs: expenditure that could be paused or reduced relatively quickly, including non-essential spending or some one-off projects. 

• Variable costs: costs that move with activity, such as casual labour or some supplier arrangements. 

• Fixed and contractual costs: commitments that may be more difficult to change quickly, including leases, core staffing and longer-term agreements. 

Doing this work in advance gives you a clearer view of where genuine flexibility exists and which capabilities you would want to protect. 

3. How long would your cash and funding last?

A fall in revenue becomes a much easier scenario to assess when you can translate it into cash. 

If revenue fell by 20%, what would happen to monthly cash flow? How long could existing cash reserves support the business? At what point would you need to draw on additional funding? 

This is where a properly modelled scenario is much more useful than a rough estimate. 

It is also worth understanding the funding options already available to the business, including existing facilities and established lending relationships. Funding conversations are generally easier to have before the business is under financial pressure. 

For businesses considering how funding fits into broader plans, our guide to growth-focused financing provides further context.

4. Where are your biggest concentration risks?

A 20% reduction in revenue is unlikely to be spread neatly across every part of the business. It may come from the loss of a major customer, weaker demand in a particular market, changes to an important product or service line, or disruption elsewhere in the supply chain. 

Take a closer look at: 

• the proportion of revenue generated by your largest customers 

• whether one product, service line or market contributes a significant share of revenue or profit 

• key suppliers or inputs that would be difficult to replace 

• any other individual relationships or dependencies that could materially affect the business. 

Concentration isn’t automatically a problem. In many businesses, it is simply a commercial reality. The important part is knowing where those dependencies sit and what the consequences would be if circumstances changed. 

5. What would tell you that it was time to act?

Financial results often confirm something that has already been developing for weeks or months. 

The more useful question is what you could monitor earlier. Depending on the business, that might include: 

• changes in the sales pipeline, enquiry volumes or order backlog 

• changes in customer payment behaviour or debtor days 

• movements in important input costs or supplier lead times 

• weaker activity in a customer segment, industry or market that matters to the business. 

Choose a small number of indicators that genuinely tell you something about future trading conditions. Agree who will monitor them, how often they will be reviewed and what would trigger a closer look. 

It is also worth discussing the harder decisions before they are needed. Which expenditure would you reduce first? Which investments or growth initiatives would you protect? When would you speak with your lender? How would you communicate with employees and customers? 

You don’t need to make those decisions today. But having considered them makes it much easier to respond sensibly if circumstances change. 

Preparation gives you more room to move 

Stress testing isn’t about assuming a downturn is around the corner. It is a practical way to understand how your business would cope with a significant change in trading conditions. 

More importantly, it can identify actions worth taking regardless of whether the scenario ever eventuates: strengthening cash flow, reducing unnecessary dependencies, reviewing funding arrangements or improving the information management uses to make decisions. 

If you’d like to understand how a significant revenue change could affect your business, contact a Bentleys adviser. We can help you model different scenarios, identify the areas that warrant closer attention and consider the practical steps available to strengthen your position.

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Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.