As the UK eases out of lockdown, business owners can begin to think once more about forecasting, getting back on track and making plans for the future. But for many, the thought of trying to predict what happens next might seem daunting so soon after a year’s worth of upheaval brought about by a worldwide pandemic.
For those businesses, Oxford Innovation Business Coach Meredydd Jones looks at the necessity of financial and contingency planning in the face of uncertainty.
Planning for long-term business success
Planning in all its guises is essential. For example, before thinking about making any grand changes to your venture you need some plan to ensure you have sufficient working capital: are the margins sufficient to cover costs and overheads?
By planning “on paper” you have at least got the chance to consider whether the business is viable or not, and it’s better to fail on paper than in real life.
Ongoing planning is vital and should be done on a regular basis. It provides a good checkpoint when undertaking a review of, for example, your suppliers or the results from the marketing plan and it allows you to check that your financial plan is working. Are the projections realistic in the current marketplace? Have your costs been controlled as envisaged? Is there a new competitive threat in the market forcing you to reduce your prices and can you still maintain reasonable margins?
Planning in an uncertain climate
Some will say that as soon as you draw up any plan, it is out of date.
Without being too cynical, drawing up projections in the current climate is a very difficult proposition but not impossible and unquestionably essential. It gives you something to follow and aim for, as well as making it easier to justify other decisions being made in the business.
Timelines have changed – so a financial projection for the next six months to a year is more feasible than a three-year forecast at present.
Getting back on track
Some fundamentals have not changed and as we enter a new normal there will be some touchstones that need to be followed. The ability to flex your financial projections and the need to have alternative plans will inevitably become more common.
Gone are the days when 5-7 year projections were requested by lenders. The world is evolving and the ability to react to change is a given; planning for a pandemic may not be top of your priority list going forward but being ready for any crises and contingency planning for the future is a must!
We have had the impact of Brexit, the difficulties of the pandemic and and recently, the closure of the Suez Canal through which over 12% of world trade flows. The Suez incident will have a knock-on effect lasting weeks, even months when combined with the other two factors. If after the pandemic you had not factored in alternative supply chains for example – your business could well be seriously impacted in the coming weeks.
Some supplies of raw materials may need to be airfreighted at a significant premium but it means that you can continue manufacturing / trading. That cost may not have been specifically considered when drawing up your financial projections but an element of contingency should always be included in your figures. So my one tip is understand fully your sources and supply chains.
Key considerations as the winds begin to change
As you reflect on how your business had to adjust during the last year, consider what worked, what didn’t and why. Think about opportunities that have arisen that were not available before the pandemic. Could you now expand, seek an acquisition or merger, or even plan your own exit sooner?
To have come through this dreadful pandemic unscathed is quite an achievement. Some wounds will heal, some unfortunately will scar. Don’t sit still and ponder on what could have been – leap up and move forward… after spending a little time on financial planning first. Carpe diem!