How Do I Perform a Sensitivity Analysis?
A sensitivity analysis is an analysis of the relative sensitivity of key elements in your business plan assumptions and how they impact the outcomes. Ideally, this type of analysis is very easy to perform with just a few inputs, followed by the ability to see what all changed in terms of your financial statements, financial ratios, cash levels, key metrics, and even investor returns. We created the Alternate Scenario in our app just for that purpose and it is super simple to use and interpret.
At the bottom of the input menu are the Alternate Scenario inputs. For example, you can enter any percent decrease or increase in Price or Quantity or Direct Expense or Indirect Expenses to see how sensitive your plan is to everything from pricing changes to sales forecast changes to various types of expenses:
You can then look at the Summary Report vs. The Alternate Scenario Summary report to see the impact of those changes. The Summary Reports includes a summary Income Statement, Balance Sheet, Cash Flow Statement, and a very detailed Investor Return Summary by investor class, complete with a detailed proceeds waterfall to show you and your potential venture capital investors what the impact is on their return multiple, IRR, and on their cash proceeds after the impact of any liquidation preferences.
Each of the above inputs can be tested individually or in any combination of each other for various types of sensitivity.
In addition, we offer a handy Cash Levels indicator report for both the Regular and Alternate Scenarios to get a quick snapshot of what happens to cash levels over the life of the plan based on both scenarios: