“The best plan not executed is not the best plan”
The lockdown and social distance measures due to Covid-19 have generated a global economic shock on supply and demand. In most companies, there is a high degree of uncertainty due to the abrupt drop in business turnover or the breakdown of supply chains and there is an immediate need for liquidity to pay business costs and expenses and to make possible its short and mid-term viability.
The immediate response to this situation has been the forced digitization of work, resulting in an advantage for companies that had advanced in their plans for digital transformation before the crisis; the ability to lead teams in “virtual” circumstances, agile reaction, and resolution to make decisions.
Also, the situation has shown that financial criteria and planning adequate time horizons are essential to make short and mid-term decisions that will affect the business now and in the coming months, so regardless of the size of the company or the teams involved in facing the crisis, it is necessary more than ever managing financial information to make decisions that can mean the survival of the business.
Companies that have a contingency plan for business continuity and the ability to adapt their responses to emerging events are better positioned to handle the crisis, surpass it as soon as possible, and even take profit from the situation.
During the crisis, the team or person performing the Planning role (which can range from the business owner to a corporate team) must strive to be agile and problem-solver to direct limited resources and, analytical and strategic capabilities to the priorities that matter. In the case of small companies in which the leader’s core training is not financial, he or she must speak with other people inside or outside the company who have the relevant skills or who provide a broader view of all critical aspects impacting the business.
Survival mode: What decisions must be made during the crisis?
In the immediate term while the Covid-19 crisis is in full swing, financial measures focused on preserving or obtaining liquidity for the business.
The companies’ financial teams or the small business owners have had to identify a geographical reference that, by similarity, facilitated them to foresee the lockdown duration and the consequences that it will have on their companies’ operations in the short term.
Companies that have a contingency plan for business continuity are executing it quickly and making immediate decisions to preserve cash. Whether or not the plan is formalized, it must be focused on:
- Weekly follow-up of liquidity and anticipation of needs,
- Liquidity financing: analysis of the lines used and additional needs. Management of bank loans applications and other available grants and facilities,
- Workforce protection through available mechanisms to reduce costs and protect employment
- Costs and expenses reduction to minimum survival levels
Other measures in this plan include:
- Sales protection and permanent contact with key customers
- Suppliers protection and contact with key suppliers
- Cancelation of planned investments before the crises
In parallel to the contingency plan execution, it is necessary to start a recovery scenario planning process for the industry and the business in time horizons of 3 months and 12 to 18 months.
In any case, this post-crisis recovery planning process should emphasize maximizing cash flow for the business to be viable, instead of the overall size of the business or the level of its income.
The recovery plan will involve more or less dramatic strategic and financial decisions depending on the sector in which the company operates.
Recovery mode: What to do and what decisions must be made after the initial crisis?
The plan includes a clear assessment of the company’s competitive position as a result of the crisis, and the selection of the business direction based on changes in the market. It must include:
A clear assessment of the company´s restarting point due to the COVID-19 crisis
- Historical and current financial trends analysis for the business,
- Selection of future management indicators (KPIs) to compare their behavior before the crisis and during the crisis,
- Mapping changes in the sector or in consumer behavior affecting the current or future results of the business and new associated risks.
- Establish optimistic, pessimistic, stable and more likely scenarios to know how the Covid-19 crisis may affect the industry where the business operates,
- For each scenario, analyze the depth of the decrease in business volume, the duration of the business decline and the time necessary to recover business volume,
- Make strategic decisions based on the liquidity limitations for each scenario.
Establish business direction
- Selection of the most meaningful scenario and the development of the financial plan for that scenario,
- The focus should be on preserving cash flow in the short and mid-term.
The chosen direction could be focused on maintaining the existing business and restoring operations as quickly as possible, restructuring the company to adapt to the changing demand environment, changing the business model to satisfy radically different customers, or creating a completely new business.
Plan needed actions and movements to the selected direction
- Identify a coherent set of initiatives, determine how to execute them, and analyze their performance over multiple time horizons.
With this information in hand, business decision-makers have a list of priorities, deferring or even canceling those that are not priorities. By conducting an in-depth analysis of the products and services associated with initiatives ranked as business priorities, as well as expected sales in the short and long term, resources and priorities can be properly aligned.
Select and monitor key management indicators to make quick decisions
- Choose the most relevant KPIs (no more than 10 among commercial, operational and financial) and build a straightforward control panel,
- Update the KPIs as often as possible to ensure that decision-makers receive the most up-to-date and reliable information to reinforce measures or make corrections
Management indicators that allow knowing that the company is emerging from the crisis phase and entering the next normal should be identified.
New realities, new needed skills
From an SME company to a large corporation and regardless of the size of the company, all face the need for planning and make decisions impacting the survival of their businesses in turbulent times. Depending on the available resources for each company, some will have more formalized financial planning and analysis processes, and others will have more intuitive ones, but in all cases they have the same objective of “arriving at destination” (or change it if “the trip is not safe”).
The COVID-19 crisis has made clear that the skills required for planning are focused on: the ability to quickly clarify to business leaders what aspects of the business create value, help them identify specific actions needed to manage the business in shock circumstances, and the ability to anticipate actions for fast business recovery.
The lessons of this crisis for some business leaders and financial teams are that in the immediate future to develop the financial planning and analysis function, the following skills will be more necessary than ever:
- Business knowledge and proactivity,
- Strategic partner vision and business value managers,
- Facilitators for business decision-making, recovery and resilience,
- Quick planning and forecasting; cross-functional collaborations, management of performance indicators (KPIs) and early alerts,
- Shorter planning cycles, more frequent review of KPIs
- Synthesis ability,
- Promotors for business digitization and “unique data” approach
The consequences of the crisis as a result of COVID-19 have been dramatic, and the financial information to make decisions has been and is being key to ensure the continuity of companies and businesses.