Our earlier article addressed establishing a firm foundation for your business. In doing so, we considered overall financial strength and the importance of thoroughly understanding your business model and operating model. In this blog we will build for the future, as ‘getting your finances in order’ is not a static exercise — it’s an ongoing requirement for long-term financial stability.
Having established where you are now, the finance team needs to start scenario planning. Where could your finances be over a period of weeks? With horizon scanning, you can plan outwards over the next six to twelve months.
These scenarios should build upon the firm foundation addressed in our earlier article. While there are plenty of scenario tools and methods available, in the current locked-down economy every scenario must use simple lenses to build out strategies for viability, survival and growth. You need to know where you are now, and where you could be in three, six and twelve months.
The key considerations for building for the future are:
- The evolution of strategies and plans.
- Realising the benefits of human capital and other intangible capitals (such as security of the supply chain).
- New market opportunities and risks.
We will pose important questions for you to address across these three important components of building for the future. In each area, finance teams must be innovative in their thinking while remaining realistic regarding the organisation’s ability to adapt and change.
At the same time, teams should not be constrained by ‘this is the way it’s always been done’ thinking. Rapid advances in medical science, logistics and IT during the pandemic have shown us that what we previously thought would take many years to achieve can be massively accelerated thorough the power of a common purpose.
Building for the future
Strategies and plans
- If you have identified changes that need to be made to your business model or operating model, do you have the strategies to deliver these changes?
- Are your current plans still relevant or achievable? If not, this could affect financial strength.
- Building holistic thinking into your strategies and plans will help your business bounce back quicker and with greater resilience.
- There will be a need to balance the short-term priority of cash and cost control with the long-term focus on innovation and business resilience. Financial considerations are important in decision-making, but it is equally important to answer questions such as these:
1. How would this strategy affect our ability to adapt to an uncertain business environment?
2. Would this strategy make our business model more resilient to unforeseen external changes?
3. How will our material stakeholders view this strategy, not just our shareholders?
- Broader, deeper thinking about business strategy is needed as we seek to develop more resilient businesses.
Human capital and other intangible capitals
- Are the inherent talents of your staff and its diversity right for future activities and the ways in which your operations might change?
- Do you have the right people in the right quantities in the right places to effectively and efficiently deliver your strategy?
- Your operating model can give you an edge over your competitors that is worth more than is often accounted for. Does your business have the skills, talents, business relationships, structures, policies, strategies to get, improve or maintain this edge?
New market opportunities and risks
- Where are there fresh revenue opportunities?
- Are there opportunities that you could take to generate revenue from new market activities that you have not considered before?
- Are there opportunities for greater collaboration with other organisations to generate shared value?
- Recognise that entering new markets, especially rapidly, present risks. Adequately assess those risks, be they current and potential competitors, health risks in the ‘new normal’ business environment, over-trading, etc.
Establishing a firm foundation and building for the future should be an ongoing exercise for financial teams. By assessing the short-term financial prospects, you can move to a medium-term financial assessment of how strategy, operating models and the different capitals of the business can be combined to build up the financial position. This all comes together to boost viability of the business.
Finance teams need to create a clear picture of where the finances of the business stand. Doing so enables them to act to ensure that the business is viable and that this viability is preserved. The overall mindset of the team should be to plan for the worst but be ready for the best.
To learn more about how you can help your business recover, check out the full Business Resilience: Tools for preparing to reopen businesses report.