How to plan in a time of unprecedented change

Budgeting and planning have never been more important. Whenever crises arise, it’s important to be able to react swiftly. The coronavirus threat has put us in uncharted territory. The strong headwinds caused by this are trying for business. Many offices are closing, forcing employees to work remotely. Work stoppages, an unsteady supply chain, cash flow concerns, market declines, multiple and massive stimulus/rescue packages, daily and even hourly announcements on closures are all very real issues. The business environment has shifted to a new normal.

Now more than ever, having a clear picture of your business’s financial situation can help you adapt to the rapidly changing environment. Planning for the impact of external events can help you respond accordingly and develop contingency plans regarding what to do next. We understand businesses like yours and help thousands of people solve critical financial issues every day. To that end, below are three things you can do today to prepare your business for the days ahead, whenever the unexpected strikes.

1. Monitor your budget

When it comes to the budget, the numbers that you planned for at the beginning of the year are no longer valid. With new developments and government mandates on a daily and weekly basis, it’s important to review your latest budget vs. actual information more frequently to understand variances across your most crucial revenue and expense accounts. Having up to date P&L reporting is necessary to see the latest state of the business and respond accordingly. For the near-term, revising your budget weekly may be necessary to monitor the impacts of external shocks. This understanding is critical to help identify expenses you should defer, key assets you need to protect, and investments you may need to make soon to accelerate recovery for your business once this crisis ends.

2. Plan and adjust

Knowing where you are today is important. It helps you generate ideas on what changes might be needed. But knowing the impact of potential change is even more important. While we can’t predict the future, we can make educated guesses about what outcomes our decisions will make. Begin by looking at critical accounts and diving into the details to gain insight as to where your riskiest areas are. Using this information, create “what-if” scenarios and test the potential impact on a set of assumptions.

For example, as customers experience work stoppages, payments on accounts receivables may be delayed. By running a days sales outstanding (DSO) scenario to see the impact on the current cash position, you can make decisions to help keep your business running.  Scenario analysis allows you to answer the tough questions – Can you offset expected DSO increases by delaying payments to your vendors? Is government funding such as the CARES (Coronavirus Aid, Relief and Economic Recovery Act) act a possibility?

Or more significantly, should you change your business model? Dine-in restaurants have needed to make massive changes just to keep the business going.  Canlis, an award-winning restaurant in Seattle that usually serves $135 four-course meals closed its dining room and created a drive-thru in its parking lot to serve $14 burgers amid the novel coronavirus outbreak. OpenTable, known for restaurant reservations, shifted to offering grocery store shopping time reservations. With a thorough understanding of the underlying numbers and potential impact, decisions like these can be made with far greater certainty.

3. Forecast and follow-through

Once you commit to new changes based on the scenario planning above, new financial forecasts are needed to ensure strong execution on those changes. Keep your forecast updated on a rolling schedule consistent with the budget and adjust financial projections for the key areas within your business such as sales or cash flow. No longer will it be adequate to re-forecast only on a quarter or monthly basis. You may need the flexibility to re-forecast on a weekly basis for the near-term.

Using key performance indicators (KPIs) to benchmark against, rolling forecasts can augment your existing budget and planning process.  You can more easily monitor progress to your KPI, make sound financial decisions against the numbers, and even give a boost to the bottom line. This is supported by  recent research which shows that companies using rolling forecasts have greater budget accuracy with less time spent and increase their profitability by 10%.²

Rolling forecasts are essential to help identify areas for future investments when things begin to turn around. Although spending money today may be the last thing on your mind, studies have shown that investing during downturns can positively impact future business performance. One recent study found that an increase in marketing spend during a recession boosted financial performance in the 12 months following the recession.¹ Knowing your budget is essential to achieving the delicate balance of cutting expenses to survive today while investing to grow tomorrow.

These are unprecedented times, and we can only hope things will return to normal soon.  Taking the right steps today can help your business weather the storm and accelerate once the turbulence has passed. Being proactive with your budget and planning process, including monitoring your budget, performing scenario analysis, and implementing rolling forecasts can help you get back to business as usual when the veil has lifted.

1. HBR – How to market in a downturn

2. The power of rolling forecasts