As the world continues the slow march to economic recovery following the devastating COVID-19 pandemic, many business leaders are feeling optimistic. In fact, some studies indicate that as many as 75 percent of business owners hope to recover fully within the next 12 months.
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While that optimism is encouraging, smart founders should use the pandemic as a powerful learning experience. Few could have predicted what happened in 2020 – and yet, here we are.
It’s a wake-up call for businesses to revisit their contingency planning and ensure they’re adequately prepared for whatever the future might hold. This level of readiness, of course, requires keeping a close eye on cash flow reporting trends as well as market force projections, which are, in turn, dependent on rigorous financial planning and analysis (FP&A).
Plan For The Worst, Hope For The Best
The prospects presented by new variants of the coronavirus may be less than encouraging. As local shutdowns and mask mandates continue to cascade in waves, many founders may fear the thought of another long quarantine and the challenges that come along with it.
Even in the absence of these threats, though, savvy business owners would do well to learn from the experiences of the past year and use that knowledge to shore up their defenses against future disasters – no matter what type.
“Businesses should be taking a hard look at their contingency plans,” says Didi Gurfinkel, CEO of DataRails, an FP&A solution for small businesses. “Obviously, these things aren’t as exciting as prepping for the next investor pitch. However, if another major event happens – or even just a general slump in the economy – those plans could be the difference between coming out on top and going under.”
The financial difficulties presented by the pandemic have highlighted the need for better planning and forecasting for businesses of all sizes, but particularly smaller organizations that may have neglected these processes in the past.
Some questions you can ask to kickstart your planning might include:
- How are your finances today? Are you confident your numbers provide an accurate reflection of your current situation?
- If you lost two-thirds of your customer base tomorrow, how long would you be able to continue operating normally? At what point would you need to make changes?
- When the time does come to make those changes, what’s on the chopping block first?
These are tough questions, but knowing their answers can go a long way towards future preparedness.
Adversity Can Be A Powerful Teacher
Many of these questions fall under the realm of financial planning and analysis. This vital field is, in many ways, stuck in the past. Heavily reliant on clunky, old-school software like Excel, they (out of necessity) involve a lot of manual data entry and combing through spreadsheets.
These practices can make it challenging for small businesses to find the time for FP&A, a challenge that can have serious implications for future stability. “FP&A isn’t just about risk management,” cautions Gurfinkel. “It’s also about making better strategic decisions for your business. Without it, leaders are flying blind.”
The pandemic has had another powerful effect on the business world – many people are reconsidering how they spend their time. As unemployment numbers drop, surveys are indicating that large numbers of people intend to switch jobs this year. A commonly-cited reason is a desire to contribute more value, or, at the very least, to feel valued.
“People want to feel like they’re contributing something. Too much time spent on menial tasks can make it hard to get there,” says Gurfinkel. “One of our aims at DataRails is to free up finance professionals from having to spend so much time on manual data entry. They should be using their talents to perform actual analysis.”
Leaders that want to retain talent need to ensure that their employees have the opportunity to do challenging work that plays to their strengths. While this should be a given, it unfortunately hasn’t seen the emphasis it needed up to this point.
Forecasting The Future
A key takeaway for businesses (especially small businesses) is the need to maximize their ability to forecast the future. Accurate financial numbers and a process that enables clear forecasting is vital to ensuring resources are in place to handle tough times, and many small businesses simply neglect this area.
Companies need to be aware of the safety nets they have in place and how far they can afford to stretch. Ideally, this is the job of financial analysts, but many smaller organisations may not be able to afford these professionals.
In these cases, software can be even more valuable, because it can take the pressure of manual work off small business owners and employees, freeing them up to focus on analysis and strategy.
Learning From The Past
“There’s a strong parallel between the FP&A process and the idea of learning from the past,” Gurkinkel says. “The essence of FP&A is transforming information about the past into insights about the future. As businesses move out of ‘pandemic mode’ and into recovery mode, they should take a hard look at the past 18 months and extract as many insights as they can.”
The small business world is one where things constantly change, but that doesn’t have to be a bad thing. Smart business owners will use the challenges of the past year as opportunities for learning and growth, with the potential to take their businesses to new heights.