Business Stress Test Calculator

A stress test does not ask what you expect to happen. It asks what happens if you are wrong, which is a different and considerably more useful question. This page takes a normal trading month and applies blunt falls in revenue of ten, twenty, thirty and fifty percent, then reports what each one does to the monthly cash position and how long the cash you hold would last. It deliberately separates the costs that fall away with the work, captured in the gross margin, from the fixed costs that continue regardless, and it treats debt repayments separately again because they are the least negotiable line in any downturn. Two outputs matter more than the rest. The revenue floor is the monthly figure below which the business loses money, and the drop tolerance expresses that as a percentage, which is usually a much smaller number than owners expect: a comfortably profitable business can often absorb less than a ten percent fall before it starts consuming cash. The page also models cost cutting with a realistic lead time, because cuts that take three months to take effect are worth very little to a business with two months of cash, and that timing distinction is where most downturn planning goes wrong.

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Your Drop Tolerance Is Smaller Than You Think

The worked example describes a business making $5,400.00 a month. Comfortable, not spectacular, and entirely normal.

Its revenue floor is $140,500.00 against actual revenue of $154,000.00. That is a headroom of $13,500.00, or a drop tolerance of 8.77%. Losing one customer worth a tenth of revenue takes this business from profitable to loss-making. Not to danger, not to a difficult year, to losing money every single month.

That gap between how a business feels and how much shock it can absorb is the reason this page exists.

Worked Example: Where The 7.3 Months Comes From

Revenue of $154,000.00 at a 40% gross margin produces $61,600.00 of contribution. Fixed costs take $48,000.00 and debt repayments take $8,200.00, leaving $5,400.00.

Now drop sales 30%. Revenue falls to $107,800.00 and contribution to $43,120.00. Fixed costs and repayments have not moved at all, so the business now loses $13,080.00 a month. Against $95,000.00 of cash, that is 7.3 months.

Note the asymmetry. Revenue fell 30% and the monthly result moved by $18,480.00, from making $5,400.00 to losing $13,080.00. That is operating leverage, and it works just as violently on the way back up.

The 10% Row Is The Warning

A 10% fall costs $15,400.00 of revenue but only removes $9,240.00 of variable cost, so $6,160.00 comes straight off the result. The business tips from making $5,400.00 to losing $760.00.

At that rate the cash lasts 125 months, so nothing appears urgent. That is precisely what makes it dangerous: a business quietly losing $760.00 a month has years before the bank balance forces a conversation, and by the time it does the losses have usually deepened. The 10% row is not a survival problem, it is a detection problem.

Cutting Costs Works, But Timing Decides How Much

Cutting 25% of fixed costs saves $12,000.00 a month and drops the revenue floor from $140,500.00 to $110,500.00. Drop tolerance rises from 8.77% to 28.25%, which converts a 30% fall from a seven month problem into a survivable one.

The catch is the two month lead time. Notice periods, lease terms and contract exits mean the business burns $26,160.00 at the full rate before any saving arrives. Cuts decided in month one and effective in month three preserve most of the cash. The same cuts decided in month four, after the owner has spent three months hoping trade recovers, arrive with far less left to protect.

This is the practical lesson of the page: in a downturn the expensive decision is not cutting too deeply, it is deciding too late. Our Cost Cutting Impact Calculator ranks specific cuts by cash saved, speed and damage to revenue capacity.

Debt Repayments Are The Rigid Line

The $8,200.00 of monthly repayments is 14.6% of the revenue floor. Rent can be renegotiated, hours reduced, marketing paused, and most suppliers will discuss terms. A term loan does none of that: the amount is contracted and missing it has consequences a late supplier payment does not.

That is why debt is entered separately here. If the drop tolerance on this page is uncomfortably thin, restructuring debt is one of the few levers that moves the floor without damaging the business's ability to trade. Our Business Debt Restructure Calculator shows what that buys and what it costs.

What To Do With The Answer

Three actions follow from a thin result, in order of how quickly they work.

Build the buffer, using our Business Cash Buffer Calculator to set a target rather than guessing. Lower the floor, by reducing fixed costs or restructuring debt before you need to. And widen the margin, which is the slowest lever but the only one that improves both the floor and the profit at the same time: our Minimum Price Calculator and Margin of Safety Calculator cover it.

Then write the number down. Every owner should be able to answer, without checking, how many months the business would last if a third of its revenue disappeared.

Related NZ Business Resilience Calculators

• Margin of Safety Calculator: the same drop tolerance measured against break-even.
• Cash Runway Calculator: months of cash at your current burn.
• Business Cash Buffer Calculator: how large a reserve this business should hold.
• Cost Cutting Impact Calculator: which cuts to make, and in what order.
• Business Health Check Calculator: the full ratio picture behind these numbers.