Covid-19 has already had a huge impact on the global economy, forcing every business, regardless of size, to adapt its strategy in order to survive the ongoing crisis. While the world’s media look to strong leadership in times of turbulence, it’s almost impossible for senior executives to make good and effective decisions without relevant, timely and accurate information.
In times when many businesses are fighting for survival, financial teams become a key weapon. The best teams can quickly analyse performance, identify a range of risks and issues and plan how to address them, allowing them to inform business decisions in unprecedented times. Without this information, leaders are left to fly blind and guess the right course of action, instead of basing decisions on fact to inform a justifiable strategy. Ultimately, there will be no quick solution to this crisis, but it is crucial for businesses to plan and adapt for the range of challenges and opportunities it will bring in the future if they are to survive.
Focus on cash flow
The first step is for finance teams to analyse the cash flows over the upcoming months, against a variety of different scenarios to ensure that the business has the liquidity to ride out the initial impact of such a colossal event.
Businesses often underestimate the importance of building a model of the business that allows directors to see the impact on cash of different performance levels and changes in supplier and customer payments. Businesses that have this model are much better equipped to deal with the numerous and unpredictable possibilities that lie ahead.
The influence of politics and socio-economic factors, as well as the speed at which today’s digitally enabled world makes things happen, have been making markets far more complex for years. As a result, CFOs have already had to become far more agile in their approach to financial planning.
Agility and adaptability are key differentiators in times of greater uncertainty, and financial analytics tools can help. This technology allows financial teams to integrate market and operational data and run multiple scenarios and sensitivity analyses, meaning they can adapt plans according to the reality of the market at any given time, even in the midst of a pandemic such as COVID-19. Some of the best businesses out there have this at the core of their strategic decision-making. Thomson Reuters, for example, have recently used analytics technology to track the real time impact on the spread of Covid-19 on their sales.
Safeguard the future
By their nature, black swan events, like Covid-19, are near impossible to predict, making planning and mitigating them even harder. There are uncontrollable factors stemming from the pandemic that are influencing the current market and causing financial uncertainty. But CFOs don’t have to resign themselves to being unable to plan for them. In fact, doing so will help safeguard business performance, not just currently but also well into the future.
One of the best ways to help companies adapt quickly to external change is having a rolling budget and flexible plan. It’s no longer sensible, or necessary, to run a one-off annual planning process. Having overall goals and a strategy to get there is vital, but making it easy to change tack if necessary is at the crux of planning in today’s climate. As part of this, companies should be running scenario modelling, based on differing operating levels over the next quarter, 12 months and three years.
This process involves mapping all the key driving factors of performance across the business. This allows the board to analyse how various future scenarios might pan out and what the impact might be on the business, and then use this information to inform decisions. This can be used for determining the impact of both internal structure changes and various external events, and is vital information to have on hand, especially in times of uncertainty.
The purpose of financial planning is to set out the business goals for the years ahead in order to work towards achieving the overall strategic objectives. This used to be a very insular process, with financial teams only considering internal business factors, and planning according to their own financial year. However, as all organisations have witnessed in the last month, this is no longer enough.
Now, with constant change the only certainty, the ability to adapt to fluctuations is hugely important to any board member, particularly the CFO, when it comes to successful financial planning. Scenario modelling, financial analytics and rolling plans help CFOs to be more agile in their approach. This, along with more prudent base planning assumptions will allow financial teams to prepare the business to weather most storms, even unprecedented ones like this.
Simon Bittlestone, CEO of Metapraxis