A fluctuating economy. An uncertain future. No wonder so many small- and medium-sized businesses face existence-defining decisions regarding their financial health. Between bank loans, taking on private debt, or government assistance programs like PPP and EIDL, drafting the right financial health plan is more critical now than at any point since the Great Depression.
Fortunately, financial planning doesn’t have to be overwhelming, even for industries bearing the brunt of recent disruptions – including healthcare, with its influx of patients, and supply chain operations facing an onslaught of demand. If your decision-making is firmly grounded in lessons from the past, advice from the present and an eye toward the future, you can implement a plan that fosters sound financial health regardless of your business model.
To better understand financial planning in uncertain times, a good starting point is an industry that historically has weathered every economic storm to sweep the planet: supply chains. During a global disruption, the impact on supply chains can be seen in the ripple effects radiating across industries of all types. Nearly every business relies on some sort of supply chain, so it’s helpful to understand how suppliers mitigate triggering events and keep threats to their financial health in check.
One Deloitte report about managing cash flow during COVID-19 points to lessons learned by the supply chain industry during other black swan events, such as the 2003 SARS outbreak and 2008’s Great Recession. Financial guidance from this study, applicable to almost any business, includes:
In addition to looking back, actively listening in real time can also help companies improve their financial health. Keeping an ear to the ground allows you to anticipate how consumers and vendors will react to the recent economic disruptions, helping you respond in all the right ways.
An easy way to accomplish this goal is to listen for advice given to your clients by industry experts. For instance, one popular fabrication website published a list of questions manufacturers should ask – and the answers they should expect – in order to assess their supplier’s post-pandemic readiness. Suppliers could, in theory, use this info to make sure they have the correct answers when their clients ask:
Create a list of sites and then keep up with the latest advice regarding your clients’ industries, searching for information that helps you understand what they’re looking for in a vendor or service provider right now – and what they’re watching out for.
Even if you anticipate everything correctly, the fact of the matter is that finances are in a state of flux for businesses of all sizes across almost every industry. This means that your typical financial processes will likely need to change.
As strategy and finance experts McKinsey & Company point out, “In normal times, financial-planning teams generally use a range of driver-based models for budgeting, forecasting, and root-cause analysis.” Unfortunately, this model might not hold up during uncertain economic times.
In fact, McKinsey even suggests replacing driver-based models with a temporary, five-point, systemic process for financial planning that can apply to just about any business, regardless of liquidity or risk tolerance. They go into more detail at the link above, but in summation:
So how can you tell when the changes you make to your financial health plan are working? There are many signs that a company is enjoying good financial health, including:
Of course, each business is different, with different plans for growth as well as definitions for success. But no matter how you define your goals, taking steps to improve your company’s financial health is a good idea for just about any situation – including post-pandemic recovery for your business.
At Seacoast Bank, we’re here to help with everything from financial to organizational health. If you have questions about the financial side of your business, or you want to know more about the solutions we offer for business banking, contact your local banker today using the form below.