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Do you have your financial plans in order post-COVID-19? Financial planning can be difficult even in normal circumstances, and with the uncertainty surrounding the future of businesses, financial planning is even more challenging. The typical 5-year plan you use, that is based on accuracy, consistency, and predictable planning cycles, can no longer be used to determine the future of your business. Therefore, financial planning needs to take on a new, systematic approach to account for all potential crisis situations.
In order to begin this new approach to financial planning, you have to consider where your company is starting from, especially in a post-COVID world. Use your financial plan from January 2020 and further analyze how the pandemic has affected your sales, supply chain, cash flow, and other factors.
Take time to consider the trends and operational drivers that have the most impact on revenue and cash flow, both before the pandemic and since the pandemic began. Identify the changes that have taken place, what risks have been identified, what drivers are more at risk than others, and how your business drivers have changed since the beginning of the economic crisis. Use these as the basis for the financial plan over the next one to two years.
Once you have identified the changes that have taken place since COVID-19 began, work to develop multiple plans for various scenarios. Consider the best-case scenario, the worst-case scenario, a plan that follows the current trajectory, and a plan that is most likely to occur. These plans will be analyzed based on the amount of decline, the length of the decline, and the time needed to return to business as usual.
At TGG, we create plans that look forward at the coming 9 months and use the information from 3 months prior to plan for uncertainty. This type of plan gives our clients the ability to operate with present information and make decisions that affect their bottom line. This method also allows us to regularly reforecast our budgets, sales metrics, and overall plans to anticipate and react accordingly.
When you have identified the various scenarios that may occur as you begin to work toward business as usual, identify the scenarios that make the most sense to follow and create financial plans surrounding them. Identifying your cash flow plan in a post-COVID world, and providing a forecast that displays your conservation approach. This forecast helps the company as a whole to better understand what you will be spending on the critical areas of your business, and where you can maximize cash flow to keep the company afloat.
Another thing to consider revising during this uncertain time is the performance plans for your employees. Start by considering the compensation rewards that are linked to targets that are no longer attainable due to Coronavirus. You should also consider the initiatives that have been implemented due to the pandemic that may alter employees to change their mindset and their day-to-day activities.
As you decide on the direction you are going to take moving forward, consider the best plan of action and establish KPIs that align with your new plan. If you have changed the course of your daily activities, where do you need to alter KPIs to set your employees up for success?
Identify where liquidity, earnings performance, and changes to the market are susceptible to change, these are your ‘trigger points.’ These trigger points serve as the most relevant KPIs for your business, which will make it easier to review changes and action items that need to be done regularly. Your financial planning team should also consider the KPIs that may indicate you are reaching a new normal for your business, and you are out of the crisis zone.
Having a team you trust to help you plan for the future of your business is necessary for your business’ success. At TGG, we want to help you plan to return your company to normal. Contact us for your free 15-minute financial consultation, see how we can help you come out on top!
This post was reviewed by our team of accounting and financial experts. TGG’s mission is to make business owners’ lives better through excellent financial management. We strive to provide the most up-to-date and objective information on accounting-related topics so our readers can make informed decisions based on factual content. All posts undergo a review process with at least one member of our Leadership Team to ensure accuracy.
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