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  • The New Normal For Businesses post-COVID — Revisiting Financial Planning & Analysis

    By Hitesh Kothari     335 Views     June 22, 2020
    Force Majeure Clause for Covid -19 Explained |CFO Bridge Services

    The worldwide lockdown and the spread of COVID-19 have effected businesses and companies in terms of financial planning and performance management.

    The coronavirus, being a piece of unforeseen and unsettling news, has hit hard on businesses. With disrupted business operations for almost three months, the current market is awaiting to see restrictions uplifted. Businesses are on the run to protect themselves, reassure their status, find a balance emotionally, and continue surviving. To date, many employees have been laid off and productivity has reduced on a large scale.

    Over the years, it has been a traditional protocol for finance professionals to plan, plot, and persevere success. They have been used to the accuracy and consistency; basically analysing every move they’ve been making into the market. Financial Planning and analysis play a vital role in budgeting and forecasting that shape the major decisions of the company. It evaluates the company’s progress to map out future goals. In order to counter the crisis and instability:


    1. Understand where the company stands currently

    Based on the current market and financial trends as well as possible future indicators, businesses must analyse where they stand. The Financial Plan that the company has turned out in the first month of the year 2020 can act as a reference point, as it can assist in establishing any expectations that need to be changed because of the pandemic. The experts should set up driver-based planning from revenue to cash, which can be done monthly or weekly, depending on the companies’ liquidity.

    It should compare the current trends and crucial business drivers before pandemic with critical business drivers since the pandemic began. It will help build a new strategy by understanding threats, opportunities, weaknesses, and strengths. The result of all this will be a guideline set of realities to analyze against developing situations. These situations will bring the ideal state of the business and the entry points of the financial plan.


    2. Build a fact base and foresee

    Companies always have to be prepared for the worst. Based on the information gathered (Financial decisions, business operations, focus points, Scheduling, etc.), companies can make assumptions about the various outcomes the pandemic can have on them. Assumptions can be the best-case scenario, a worst-case scenario, a market momentum-based scenario, and a possible case.

    Experts must evaluate each scenario along three dimen­sions: the intensity of the drop, the extent of the fall, and the time required to rise again. Every situation must reflect precisely with the company’s starting position.

    For example, if the company is facing a minimal drop in the sales due to COVID-19 (essential commodities sector, for instance), have to make small, non-structural changes in their financial plan to tackle the situation efficiently in the crisis. On the contrary, if the companies suffer from a massive drop in sales (Hospitality industry, for instance) have to think about restructuring their whole cost structure and even its complete plan of action. Hence, this all will give them a plan to revamp their status and process their progress rate once the pandemic situation is over.

    The financial planning experts should plan forecasts that should not consider any expenditures or upside from any key activities specifically for the market momentum case scenario. The team should then do the pressure test forecasts and initial company expectations against each situation. They should also consider timelines starting from the initial three months and extending until one year to 18 months.

    While performing this exercise, the financial team should not overestimate and make assumptions without attempting to be excessively exact.

    It can then give an idea about the capital and operational limitations due to COVID — 19: Seeing the current and mid-term considerations which vital activities can be quickened, eased back, postponed, or dropped out?

    For instance, a company with better liquidity may speed up their chances to support its supply chain by either purchasing more raw material or making advance payments to the vendors to smoothen the process. On the other hand, companies with cash issues might have to extend their payment terms with the vendors and delay certain activities until the crisis gets over.


    3. Sail your business boat in the ‘Right Direction’

    Once the company has locked down on the most relevant and certain assumptions, they need to approach the outcomes with a financial plan. They must focus on sustainability, thereby working on conserving cash flow. They should also reshape their business according to the predicted future, not to mention that this plan must be detailed for an effective result.

    In all these situations, the financial experts should explain the companies to take a cash conservation approach during COVID — 19. Priority in such a crisis should be how to boost income to support the organization and not on its size or revenue.

    Moreover, the financial team might want to look into the company’s performance plan by giving more importance to the accomplishment of the initiatives.

    This is required mainly for two reasons. The first is to see if any remuneration rewards can be associated with any targets that might not be applicable in such a pandemic. The second is the situation has changed so drastically that any new activities may expect workers to take on a new mindset and grasp new tasks.

    For instance, making the beer production company shift their traditional operations to a new business model (Preparing hand sanitizer) to meet different target audiences. Thus, giving a new direction to get a promising result.


    4. Determine the ‘Action’ plan

    Once the financial plan is well-constructed and is all set for execution, the financial planning and analysis team should work on initiating their moves step by step. It is essential to have the right combinations of big planned steps, varied options available to the company, and risks.

    The team needs to use all its resources thoroughly and then track performances to maintain stability and increase productivity.


    5. Identify Key performance indicators (KPIs)

    Because of COVID-19, there has been a constant transition in the market. The team ought to closely monitor the company’s fluidity, the reaction from their target audience, and track their performance. Based on this, the company will then be able to identify trigger points that will improve the business numbers.

    The teams can then observe the changes and steps required to counter such changes to get the desired result or design a new situation. These keep decision-makers up to date about various activities with the most reliable information.

    Furthermore, the financial team should figure out those crucial indicators helping the company to come out of the crisis and enter the new normal.

    After this lockdown, the whole world must embrace the ‘New Normal’. There will be numerous changes in the way businesses function, their customers, targets, etc. Companies must ensure they are ready with new capabilities and enhanced performance management.


    For businesses working extensively towards sustainability, this too shall pass!



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  • Hitesh Kothari
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    Hitesh Kothari

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