Monday, 31 January 2022 How do we get back to business in uncertain times? Businesses have experienced a range of twists and turns over the past two years. Whilst many businesses will, ultimately, be able to navigate forward with little to no additional financial support, some will not. With continuing uncertainty and new challenges ahead, it is more important than ever for all businesses to have a clear and considered forward plan, supported by a dynamic forecast, to prioritise and adapt, as needed. Redefining ‘business as usual’ Every business must redefine their ‘business as usual’ and plan the journey to get there. The COVID-19 pandemic has changed the way many businesses operate, in some cases fast-tracking structural change which has included the rise of eCommerce, M&A activity, capex spending and material cost cutting initiatives which may not have translated to cash. While some businesses have prospered from this structural change, others will face new challenges and uncertainty. The challenges ahead may take many forms. The government stimulus programs and lender/landlord moratoriums, responding to lockdown-related job losses and business closures, are unwinding. Temporary pauses on debt are lifting and recovery actions are likely to recommence. Border closures have caused employee resourcing and supply chain issues (with direct and indirect impacts). Fluctuating market conditions have seen increasing and volatile costs, and we expect to see future interest rate increases and corrections in the stock market and housing market. These challenges will not be limited to underperforming businesses as most, if not all, businesses are likely to experience impacts at varying degrees. The successful businesses will be those that recognise these challenges and respond accordingly. Cash management is critical The challenges outlined above are going to be the catalyst of significant uncertainty in the economy into 2022 and beyond. In times of significant volatility, the timing mismatch between cashflow and profits can vary significantly. As this occurs, cash management becomes critical for businesses. From our experience, the primary cause of business distress is the failure to adequately understand the cash position of a business and ability to manage cash. While performing businesses may face cash squeezes as working capital requirements significantly shift. Cash optimisation benefits all businesses. For performing businesses, this could be in the form of a strategic (targeted) review of cash procedures and protocols to ensure good cash hygiene. Underperforming businesses may require an extensive review of current cash management practices leading to wholesale changes to maximise cash utilisation. The importance of proper forecasting should not be underestimated The uncertainty facing many businesses has increased forecasting risk. Many businesses are forecasting to thrive in the post COVID-restricted economy. However, many do not know with great accuracy what the future looks like for their business. In this environment, it is critical for businesses to stress-test forecasts, by sensitising key assumptions and drivers to understand the impact on the business in a ‘high’, ‘low’ and ‘base’ case. This process will also help inform the business as to what ‘new normal’ can likely be achieved. This can set grounded expectations of the future performance. Key benefits of planning and forecasting: Promotes corporate hygiene – clearer reporting and tools to focus on day-to-day tasks. Minimises the chance of ‘nasty’ surprises. Highlights management capability – opportunity to address any skill, knowledge and experience gaps. Provides a better understanding of business financials. Provides a roadmap to meet short and long-term objectives. Highlights risks and mitigants. Improves relationships with stakeholders. Need additional funds? Both investors and lenders faced with decisions as to whether to provide further financial support will insist on an up-to-date plan and forecast to ensure the business is planning appropriately. Businesses that undertake proper planning and forecasting provide greater transparency, demonstrate management capability and better debt facility management and build trust and credibility with stakeholders. What investors/lenders will be looking for Does the business have a clear and considered forward plan (including recent significant forward changes) and dynamic forecast (including cash flow)? Does the investor/lender understand the basis of the forecast? The assumptions and key drivers? What is the ‘new normal’? Has the business clearly articulated risks and mitigants? Is the business information, provided to the investor/lender, transparent? Is the business attending to statutory lodgements and payments (e.g. paying employee super)? We are all in uncharted territory and the future is uncertain. However, there is one certainty during these times – if you fail to plan, you plan to fail. Planning, cash management and dynamic forecasting are key parts of good corporate hygiene and are vital if seeking additional funds from investors or lenders. Defining business objectives is critical to enable businesses to prioritise, make strategic decisions and get the additional support needed to implement change.