Even with the most careful preparation, planning for the new year may look a little different this time around. Despite a turbulent year nearly being visible in the rearview mirror, external factors are unlikely to conform to our 12-month calendar and will
continue to serve up disruption and opportunity in 2021.
In the UK, for example, ‘lockdown’ has been declared the ‘word of the year’ as the country manages the second set of government restrictions. The re-introduction of lockdown highlights the regularly evolving
factors and possible scenarios that finance leaders must account for when looking to 2021.
What remains the same is that finance leaders have a pivotal role to play in guiding their organisation for what comes next. Here are three things they must do ahead of, and into, the new year.
Continue to deliver cash for the next phase
At the start of COVID-19, finance leaders were understandably focused on cash – taking stock of the resources in reserve, outstanding receivables and pending liabilities, then making estimates of how much cash the business will need to maintain operations.
But the stop-start nature of the economy during lockdown(s) means the ‘cash is king’ mantra will remain true. A fall in demand or disruption to the supply chain will have an immediate effect on cash flow.
These actions will continue to be crucial. But there has also been a shift towards reforecasting, and identifying pockets of budget that can sustain, adapt or expand operations. For example, finance leaders can actively reallocate resources to business lines
with strong existing revenue streams and optimise the company’s use of alternative, innovative sales and delivery channels, such as direct-to-consumer, which have hit a 10-year high. And they can also help remodel recurring revenue for continued cash flow.
Subscription or license-based offerings will be more appealing to customers and prospects than large, one-off costs.
Turbocharge financial planning and analysis
Forecasting is hard in normal times, let alone in a pandemic when nobody can be sure when normal operations and purchasing behaviour might fully resume. Even so, as the new year approaches, finance leaders must build out a handful of scenarios that are grounded
in reality and assume a wide range of outcomes. Every organisation must relook at its forecast for sales, expenses and cash flow and retest its assumptions. These scenarios should include modeling cash flow, burn rate and liquidity under multiple scenarios.
This planning needs to be organisation wide. From finance and sales to marketing and operations, reporting and analytics are core to the planning process and can provide one integrated, company-wide plan. Once cash flow is under control, and budgeting is
being carried out in real time, CFOs must accelerate forecasting work, using continually updated business information to strategically plan for every eventuality. Crucial here will be implementing collaborative tools to monitor and manage Key Performance Indicators
Real-time analytics enable finance leaders to make fast decisions. It is about producing actionable insights built on historical trends, current conditions and likely scenarios so decision-makers can forecast what will happen next. Insights, analytics and
scenario management enable finance leaders to evolve balance sheets into dynamic cash flow plans, revenue forecasts, headcount analysis, budgets, and expense plans.
Collect data & collaborate
Before getting too far into the budgeting process, finance leaders need to work with executive leadership and re-evaluate goals and expectations. It’s crucial that leaders establish goals and expectations, then outline assumptions for achievement that they
all understand and agree upon. But how do you determine those expectations based on past trends?
Collecting data from across the organisation can be a painful process, especially if it sits across a blended mess of systems and isolated departments. Any time data passes from one system to another, there is room for human error. Finance professionals
spend hours aggregating and reconciling data before proper budgeting can even begin. They need to clearly outline all sources of data needed and establish a cadence of collection. Highlight areas of concern where the most risk exists in the process and seek
to close the gap. Many organisations turn to a single system that will aggregate all the data, enabling finance to have a comprehensive and agreed-upon view of performance for budgeting.
While no one knows exactly what a post-COVID-19 world will look like, what we do know is that being able to evolve quickly and make fast, well-informed decisions will be key, and finance leaders and their teams will be at the heart of those strategic moves.