A new reality: coronavirus’s impact on financial planning

As the coronavirus (COVID-19) outbreak spreads to more countries around the world, all global businesses—small and large—are having to recalibrate based on emerging realities. The devastating news of increasing numbers of sufferers and fatalities is having an inevitable knock-on effect as authorities introduce stricter health measures around the world to reduce the spread of the virus. It is encouraging that businesses are taking a “people-first” approach to protect the welfare of employees and support global containment efforts. For example, Nike has closed offices in The Netherlands, and Emirates is offering both paid and unpaid leave options to its workforce. Working from home is fast becoming an option for many. Elsewhere, it was the worst weekly decline for stocks since the 2008 financial crisis. Some companies, such as drinks brand Diageo, have declared their profit warnings, forecasting between £140-£200m profit losses this year. Invariably, a health crisis of this magnitude will hit businesses and balance sheets in different ways. For example, as demand changes for specific services or goods, ecommerce platforms could see spikes in demand as people stay indoors. However, organisations with a supply chain heavily dependent on China may experience a shortage of goods, which could force them to increase prices. In the service sector, as people change their travel plans to avoid the most infected countries, this could impact air passenger numbers, hotel occupancy rates and the tourism industry globally. These types of worldwide events—or Black Swan events, as some term them in hindsight—can cause detrimental financial damage if businesses do not plan for the short-term and long-term effects. Finding a way through The Office of the CFO in many global businesses is having to work quickly to pull together information on short notice to advise their boards on potential courses of action. There are two areas of focus for global businesses from a financial standpoint. Firstly, we see organisations updating their short-term sales forecasts to understand the impact on their business. This requires a mechanism to capture local market knowledge and intelligence to then integrate into an overall plan. Secondly, we see many organisations updating their market sizing forecasts to reflect the new macro-economic environment. This helps businesses understand what is happening at an industry level so they can plan for different potential long-term scenarios. This is crucial given the recession warnings being touted by analysts and commentators. Planning differently: rolling forecasts and the role of tech One potential long-lasting outcome of this outbreak is that it shines a light on the need for organisations to adopt agile planning and forecasting processes, with the support of automation technology. Those businesses that have already implemented rolling forecasts will be in a stronger position to understand and react to changes across the markets in which they operate. Larger companies are finding that they are able to complement their stringent budgeting processes with a more flexible forecasting method to allow them to react more quickly to changing market conditions. Integrated approach to planning Despite the advances in automation, some finance teams still budget and forecast in spreadsheets, a manual process which is extremely prone to error. Often, annual budgets are captured in one spreadsheet, a marketing expenditure forecast in another, and a demand forecast in a third spreadsheet. This causes inevitable problems, for example: Rekeying data entries, which can be time-intensive and laborious. To avoid rekeying data, you really want all of your planning data to be integrated in one place. For example, the output from a sales forecast becomes an input into a financial forecast, so every time the sales forecast is updated, the financial forecast is updated automatically with the latest data, too. Manually collecting input from local country representatives and consolidating it is a slow process which doesn’t provide the agility required when events are unfolding quickly. Providing tools to simplify data capture and consolidation makes it easier to create a rolling forecast. Rolling forecasts give a more realistic and up-to-date view of how the business is affected by internal and external factors, making it easier to react and adapt to sudden market changes. This is a critical capability to help executives make the right decisions in the wake of the coronavirus outbreak, considering circumstances are changing by the hour. Working manually is way too time-intensive for this type of global event. Financial planning is only as good as the data that supports the calculations. A new reality? Responding to COVID-19 is placing huge demands on the Office of the CFO. Rolling forecasts that incorporate data collected from local managers provide the financial intelligence business need to guide their actions. We may still be in the early stages of the outbreak, so continuous planning prevents any business shocks later down the line. Richard Sampson, SVP EMEA, Insightsoftware