Gaining financial flexibility
Many corporates have managed the initial months of the pandemic crisis and are now settling into a period I call “limbo land”. It is a peculiar period of fluctuating activity. Nations are either entering or exiting various forms of lockdowns. This cycle will probably continue until a vaccine has been successfully distributed.
The initial surge in consumption within digital platforms and elsewhere such as home renovations is likely to dwindle once Government support programs expire and the volume of economic activity resets. There is only so much governments can afford to prop up the economy. One exception is interest rates which will trawl along the bottom for years to come.
Of course, none of this can be predicted with certainty. The linchpin is distribution of a vaccine (and its efficacy).
Hence the over riding theme is to ensure your business has the agility and flex to manage volatile cycles. This blog focuses on finance as your finance team will be a key driver underpinning the rest of the organisation’s ability to move adroitly and at speed.
There is not doubt finance teams are already under the pump providing timely outlooks to senior management. There are certain check points which a finance leader will need to keep in mind to gain better control.
The annual budget and forecast review process should be dead and buried. Its replacement will have been multiple models depicting scenarios with short and long-term time frames.
One aspect worth considering is to have “floor” and “ceiling” models. The floor model is where nothing is done in response to the crisis, i.e., there has been no reallocation of resources or launch of new initiatives. The ceiling model is the opposite where there is a complete adoption of all new initiatives and immediate reallocation of resources. These two scenarios provide the range in terms of potential outcomes.
From the drivers generating the models, create sensitivity analyses to highlight triggers for executive decision making. As the needle can move either way, it is either a risk or opportunity which can be flagged. From this, decisions can be made as to resource allocation and tactical decisions on product and service offerings. For example, studying cart abandonment rates for SKUs would be an important driver for e-commerce platforms.
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If you are looking for greater flexibility with your business, please reach out to me at Cornell@qualia8.com