If you know me, you know I love a good business plan — I think it’s your best chance of success, figuring out where you want to be and how to get there. However, what happens when something comes from left-field that renders your plan next to useless, at least in the short term? Yes, like a worldwide pandemic… I recently spoke on a panel for a Westpac webinar on how to forecast in a pandemic and here’s what I said to say:
In times like this, short-term forecasting is critical… Traditionally, a lot of SME companies weren’t in the discipline of even doing a cashflow forecast. Covid has changed all that. Personally, if it was me, I’d be updating it weekly and more likely daily.
With your forecasting, you want to have at least 2 scenarios: one ‘expected’ and one ‘if things are pretty bad’. While it’s not nice to have to consider worse case, you don’t want to be like a possum in the headlights so use the info for good even if the info shows bad, scary things.
Budgeting is hard given the uncertainty… Again, like with forecasting, I’d do a couple of versions — one based on the best case in today’s circumstances (so not too optimistic) and then another one that caters to the possibility that things don’t go as well as we hope ie if you are impacted for a lot longer…
When you are budgeting it is really important to note down the assumptions so you can refer back to why you made that call or this call. You do this for two reasons: firstly to learn how good you are at guessing your future and secondly so when you are comparing actual-to-budget in the future, you can have some easier means to reconcile the two knowing how close to the money your assumptions were. It’s also good when talking to the bank, so they can understand why your numbers differ — it makes assessing your viability as a potential customer simpler in the future.
While I am all for a 12-month and longer term budget, in a Covid world it might be wise to adopt some shorter budget timeframes — even quarterly or monthly. That way you can be more realistic knowing where exactly we are at with Covid and how the Covid world we are living inside looks for the short to medium term. Depending on how much your business is affected by these current times, you could even get down to a weekly and daily budget and/or forecast. You have to do what you have to do to survive and survival is partly about being forewarned on how things will be looking financially so you can then do as much as you can about it proactively.
Given these times are really hard on so many businesses and people’s mental health I think it’s very helpful to have both an extremely short-term horizon with your targets as well as keeping a bigger picture view of how things will look when we have a slightly more normal world with less restrictions.
Personally, I think the number one thing to do with how your business is going and looking is to front-foot as much as possible whatever your horizon is showing. If it is dire, you have some hard decisions to make but if you can just get through these super challenging times, better times will hopefully be around the corner later in 2022… Fingers crossed!