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.
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.
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