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Strategic Financial Planning Steps to Boost Business Post-Pandemic

Posted by Andrea Brady and Andrew Desiderio on Thu, Jul 2, 2020

Strategic Financial Planning Steps to Boost Business Post-PandemicAs businesses look to navigate towards financial health in the changing normal of a post-pandemic world, there are key areas of their business plan to reassess.

The goal, as we endure and ultimately come out of this crisis, is to rebound to better than normal. Because as the pandemic ends —whether in 3, 6, 12 months or more — the world will not look the same.

Businesses that start forecasting the post- COVID-19 landscape —and make plans accordingly—will be in a good position to succeed during the pandemic and beyond. Below are some key areas to to address in planning, and businesses should work with their trusted advisors to ensure a well deep perspective and test the thinking in critical areas.

Strategy Alignment

Successful businesses typically have multi-year strategic plans in place. This is a critical practice, but with the upending of the economy this year, plans likely need significant revisions.

Whether it’s an early step in your planning process or a later one – there’s likely merit in shoring up your 2020 finances first before looking beyond this year – at some point in 2020 you’ll want to revisit your multi-year strategic plan.

You should examine both past and current trends to forecast future scenarios. Here are some questions to consider:

  • What were common factors among businesses in my industry that thrived during the last recession?
  • What new customer needs will you need to address?
  • What are the external threats facing your industry?
  • Does your business model need to evolve?

READ MORE: 8 Successful Post-COVID 19 Pivot Tips for Businesses

Financial Health

The first 2020 plan you should revise is your cashflow forecast. Begin with your current cash position and then forecast the expected cash inflows and outflows. (These are valuable projections even during flush times but especially during recessions.) Create several cashflow forecasts based on a variety of revenue scenarios – flat revenues, a modest decrease and a major decrease.

The next step – coming up with solutions to cover the possible decreases. Some options include:

  • Halting nonessential purchases
  • Negotiating longer payment terms with suppliers
  • Reducing variable costs, such as materials and cost of goods sold. Fixed costs – such as rent/mortgage payments and wages are harder to control.
  • Applying for a low-interest government loan. The Paycheck Protection Program loan has been especially beneficial to many of our clients and is forgivable if you meet requirements.
  • Deferring Social Security taxes. No matter the size of your business, the CARES Act allows employers to defer the payment of the employer’s share of social security taxes that would otherwise be due from March 27, 2020 through Dec. 31, 2020 without penalty or interest charges.
  • Taking advantage of tax relief provisions. The CARES Act included new options for tax relief for businesses, including new rules on net operating loss deductions, qualified improvement property depreciation, excess business loss disallowances and business interest expense deductions. Read our prior article for more details.

READ MORE: The Post-COVID 19 Business World: How to Find Agility, Resilience

Cost Optimization

Resource Center - Email Graphic Rev2Cost cutting is often the first response during an economic downturn but cutting all costs is not necessarily the best business move.

A recent Harvard Business Review study found businesses that focused on operational efficiencies over layoffs were more likely to experience success during and after a recession. A Lean Six Sigma consultant can help you identify your business inefficiencies and ways to improve them. There may be opportunities to automate certain types of work processes to reduce labor costs.

Your spending should be prioritized on the products and services in highest demand and those driving the most profit, as well your biggest customers representing the greatest share of your revenue. The Pareto Principle finds that for many businesses, 80% of sales come from 20% of customers, and servicing and maintaining those customers should be your top priority especially in times of turmoil.

Reach out to your best customers on a regular basis and adjust to what may be their changing needs as their industries change due to this recession. Here are some tips to reduce revenue loss:

  • Expect some degree of loss; don’t spend time fighting for every dollar or minor customer
  • In addition to focusing on your top customers, also look for customers most insulated from novel coronavirus risk
  • Consider modifying your product or service offerings to those in high demand
  • Look for product or service innovation quick wins
  • Consider revising your pricing model to provide more flexible and affordable options

Working Capital Management

The primary factors in efficient working capital management are accounts receivable, accounts payable and inventory. Here are some best practices to consider:

  • Collect your accounts receivables faster: Companies can shorten their cash conversion cycle by requesting upfront payments or deposits and by billing as soon as information comes in from sales. You also could consider offering a small discount for early payment, say 2% if a bill is paid within 10 instead of 30 days.
  • Improve your accounts receivables process: Several people generally have a hand in a company’s billing and invoicing process and you should look for ways to increase their efficiencies. One way is to automate your invoice creation process in order to ensure maximum efficiency in the billing process.
  • Disburse your accounts payable more slowly: While it’s beneficial to you if your customers pay early, your cash on hand increases if you disburse your accounts payable later. While it’s recommended you pay invoices according to terms you’ve negotiated with your suppliers, you receive no benefit from paying early.
  • Inventory counts: First and foremost, your inventory must be correct and verified. Without an accurate inventory count, you don’t know what your true costs are, and if you don’t know what your costs are, you can’t control them.
  • Proper ordering: Managers or other appointed employees should order properly to ensure that last minute purchases of product are a very rare occurrence. Technology can be very helpful in the ordering process. In this age of information, you should already know how much inventory you use in the day-to-day operations of your business and when your deliveries are arriving.
  • Manage your inventory more efficiently: Companies can reduce their cash conversion cycles by turning over inventory faster. The quicker a business sells its goods, the sooner it takes in cash from sales and begins its accounts receivable aging.

Advisory Partners

It’s imperative to work with experienced advisors to improve your business’s finances to give it its best fighting chance at emerging successfully from this recession.

Find out if you could be getting more from your CPA relationship. Contact us to start a discussion.

Topics: Business consulting, COVID-19

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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