A significant challenge for finance departments in the post-pandemic world will be adjusting financial forecasts to comply with the new economic landscape.
Spearheading finance departments, Financial Controllers and Finance Directors are now faced with the difficult task of forecasting for the year based on highly changeable variables.
Today, I share seven guidelines to aid heads of finance departments when forecasting for the next 12 months.
1. Going Back to Basics
Financial planning for a post-COVID world will require at some level going back to basics.
You will need to collate the figures of exactly how much your current overheads cost monthly and know the value of your tangible assets, offset this against revenue, and this will alert you where you might need to make cost savings or monitor expenditure.
The ICAEW’s COVID-19 guide states that in principle, CEOs should make themselves responsible for all cash related matters, such as low employee morale from impacted jobs and ultimately deciding if the business will be viable in the weeks and months ahead.
This is, of course, a tenuous time for everyone involved. You should aim to focus on the fundamentals of your job and not become preoccupied with the potential impact of the numbers you are working with.
2. Increase Your Frequency of Reporting
Now is the time to increase the frequency of your financial reports. The regularity will depend on your companies individual situation, but you should aim for weekly reporting at a minimum. These reports should detail cash flow forecasts for the next 13 weeks, as is common in periods of turn–around.
Your position will be changing regularly, and you can expect this for several months at least. Being acutely aware of changes at this time is a must for finance directors – a flexible and formidable team with whom you have a great relationship will be essential in this time of increased reporting.
3. Cashflow Forecasting
Businesses with the best cash flow forecasts have a better chance of managing this crisis effectively.
Your cashflow forecasting must reflect numerous scenarios. Considering a possible second wave of COVID-19, looking at how lockdowns worldwide could impact your suppliers, the cost of bringing back all furloughed employees, what effect will deferring VAT payments until the end of 2021 have? Will social distancing affect your productivity dependent on whether this is 2 meters or one?
You must enlist the help of your most talented forecasters. Those with training in probability scenarios will be invaluable here to produce at least three different 12-month scenario forecasts, maybe even more.
4. Creating Predictive Business Plans
All signs point to 2021 being the year when businesses can expect to return to pre-COVID levels so your forecasting plan should reflect this.
Prepare your forecasting from now, until the point when you expect things will be back to some semblance of normal. This can be adjusted monthly as you acquire more financial data, and as trends in the market begin to appear – any upturn before it is expected will be a bonus.
You can enlist the counsel of trusted advisors and economic trend trackers to help create this predictive document.
5. Managing Tight Budgets
As of June 2020, the UK is in a recession. While it is predicted that the downturn will be short and sharp, you will have to make cuts in some areas. Finance departments will be working with the tightest of budgets for the foreseeable.
Key points to consider when budgeting include –
- Look at your organisation or department’s yearly strategy and how resources will be distributed to achieve your financial goal.
- Review income targets and an expenditure cap.
- Review existing budget commitments, such as staff and client contracts.
Regular monitoring of expenditure will be critical in the coming months to track spending trends within the business and react correctively.
6. Raising Revenue
If you are offsetting a tight budget, how will you approach raising revenue in a post-pandemic world? As the recession dictates, lending will also get tougher in the coming months. Can you rely on business loans or private equity firms? Will you consider financing assets to help your business grow in the following 12 months?
The private equity industry could fall by 15% this year as a result of COVID-19 – how secure are your relationships with lenders? It might not be all bad news; a recent report found that only 12% of private equity firms were planning on making salary cuts, suggesting that only some firms will struggle, so you must assess where you stand with lenders.
7. Remembering the Positives
Finance departments are looking at a challenging time over the coming months, but it is vital to remember that there is a light at the end of the tunnel.
A recent PwC survey found that over half of all CFOs expect it to take at least three months for their company to recover from the effects of the virus. While this scenario is not ideal, the recovery period looks to be faster than initial predictions. Bank of England governor Andrew Bailey has said that parts of the recovery are already happening.
Respondents of the PwC survey also highlighted where they thought their organisations would be strengthened post-COVID. Better resilience and agility, flexible working (e.g., hours and location) and investment in technology to strengthen teams were found to be the main areas where the focus needs to be for financial organisations.
What Next?
Your role as a head of finance has never been more critical. If you need talented financial employees to help you navigate the post-pandemic landscape, we can help.
We recruit talented employees for financial departments and organisations – get in touch with us here to find out how we can enhance your finance team.
Thanks,
Rachel
About Rebus Financial Recruitment
Rebus Financial Recruitment provides a specialist and focused recruitment service to its customers, which historically range from a wide variety of organisations including SME’s to large PLCs.
We strive to offer both the client and candidate a seamless recruitment experience. Using our expertise, we get to the heart of employer and employee needs; and, in doing so, we match the two perfectly. To find out more, get in contact with one of our team today, or you can call us on 01282 930930.
