Picture this: A worldwide “unthinkable” event has happened. The crisis swan in this case may be black, white, or gray, but its impact has a universally expected result. Lenders, investors, and stakeholders want to know your business is weathering a volatile market and where it stands. In fact, they want regular updates.
As a result, many finance teams feel compelled to quickly circle the wagons — to determine operating and free cash flows, liquidity, and the most expedient ways to preserve them. Eventually, it becomes clear the business plan doesn’t match reality. Key drivers have been impacted for the foreseeable future. This spurs the use of a contingency plan or its immediate development to isolate the impacts and to identify what’s driving business now. The new standard for FP&A groups will include higher-frequency scenario modeling, variance analysis, and continuous reforecasting.
What are an organization’s immediate priorities in uncertainty?
Cash, Cost Discipline, and Workforce
Sound cash management practice may be the single most important function in times of unpredictable change. It gives leadership the insights to make crucial decisions on costs to cut, investments to increase, and supply chains to strengthen. With cash flow forecasting in mind, cross-company capital expenditure projects should be evaluated and reprioritized according to their urgency. Nonworking cash can be identified and redirected to more valuable opportunities.
CFOs can respond with ways to improve cost discipline using methodologies such as zero-based budgeting (ZBB) or frequent cash flow analysis. Scenario-based and rolling forecasts should be in place. Ideally, FP&A managers should be aware of the KPIs and liquidity drivers that influence week-to-week cash flow and provide weekly reports to every business function that drives revenue.
This approach requires coordination and collaboration across business functions — and along the entire supply chain — with a clear view of the financial risks and potential opportunities of key trade partners and suppliers.
Preserving jobs remains top-of-mind in the midst of any crisis. A workforce plan, integrated with budget, revenue forecasts, and a clear corporate financial plan, helps determine where to make the fewest reductions. Scenario modeling for pay cuts, furloughs, and adding critical roles due to absence or to add new capability is an integral part of today’s contingency planning.
Of course, this all might be easier said than done.
Enabling a recovery plan or growth opportunity is difficult when a finance team constantly finds itself in a defensive position — overwhelmed, reactive, and extracting instead of strategizing. Moving forward is hard when everyone’s just treading water.
For many finance teams, managing vital, time-sensitive business-as-usual finance functions makes up 40 hours of the workweek. Limited resources are often scrambling to meet a new rush of increasingly complex challenges. It’s difficult to access fragmented and siloed data repeatedly and its consolidation is time-consuming. Manipulating spreadsheets and information from multiple legacy systems is both inefficient and slow. Who has time for actually mining data, completing deep analysis, or creating actionable plans?
Being nimble in a crisis doesn’t mean a team should work harder or faster with inefficient processes. Technological innovations can connect an enterprise to data from every functional area along the value chain and model what-if scenarios during any major market shift. These easy-to-deploy solutions can quickly identify drivers, critical uncertainties and develop plausible outcomes to help guide business strategies as well as short- and long-term goals.
Now imagine this: All data sources have become connected behind the scenes. Advanced modeling capabilities are available with a few keystrokes. Built-in analytics deliver fully integrated and automated cash flow planning that can be refreshed with one click. Headcount planning is fully integrated and aligned with business planning for visibility into workforce costs and composition.
Speed to insights and strategic decision making is radically reduced. Business users have the ability to create interactive dashboards and customized, self-serve reporting that’s easy to access from any location — via Excel, web, or mobile. Stakeholders can be provided real-time updates on demand.
Such solutions exist and can increase FP&A productivity by 70 percent. Implementing intelligent enterprise planning and a single source of truth enables finance teams to devote much more time to business partnering, strategy, recovery, and growth. It starts with developing the right roadmap and an awareness of emerging, adaptable technologies’ benefits in meeting a company’s immediate concerns and future-facing performance goals.
It’s critical to choose the right solutions and, in the absence of internal technology platform expertise and unlimited time, a digital transformation expert is a valuable guide. eCapital Advisors starts by understanding the intricacies of individual businesses and finance functions to plan, recommend and implement the technology that solves their unique challenges. We help finance teams leverage speed, agility, and flexibility so they can actively respond and thrive.