Recently, large and small businesses learned a very powerful lesson: One never knows what the future holds. The global pandemic arose and quickly altered how companies operate. Given corporations’ current national and international reach and the unrest that unfortunately seems to grip the world, dramatic change seems like the status quo as firms move forward. Therefore, businesses need to incorporate uncertainty and equity into their financial planning. Here’s how.
Become More Adaptable
Running a business has never been easy. Change and uncertainty are part of the process. Those companies are most willing and able to adapt to market conditions rather than force market conditions to impact their business plan fare best. In fact, two-thirds of successful businesses had to ditch their original strategic plans to cope with unforeseen market changes.
Long-term forecasts have become increasingly unreliable in a world of unpredictable and accelerating change. Sticking to a plan that was crafted before a market shifted is dangerous. Enterprises need to embrace flexibility and agility.
Include DEIBAJ in the Process
The corporate landscape has been tilted. Women and people of color were undervalued, underutilized, underpaid, and underfunded for many years. Recently, awareness about the inequities has increased, and a number of organizations are trying to change. Now, all businesses need to view budgeting decisions through this lens. They have to account for women and minorities in the organization and ensure that their department budgets are not disproportionately impacted. Also, cutting DEIBAJ (Diversity, Equity, Inclusion, Belonging, Accessibility, Justice) training and programs should be avoided as much as possible.
Concentrate on the Big Picture
Traditionally, employees spent a lot of time examining and rechecking numbers to ensure the budget was accurate. Employees obsess over its accuracy and spend time tuning it. The value of such thoroughness diminishes as budget checks happen more frequently. After all, a budget is merely a guideline designed to provide management with a snapshot of how the firm operates at different times. No adjustments are needed if budgets are operating close to the expected range. Only when a business significantly over-performs or underperforms does the firm need to reevaluate its strategy. Rather than painstakingly examine the budget on a recurring basis, managers perform quick checks, understand what is happening, adjust if needed, and if not, then focus on solving other pressing problems.
Beef up the Emergency Fund
Management has to balance the desire to invest and grow the business against the need to have additional funds If hard times arise. A standard metric is that a firm should have at least six months of working capital to tap into if needed during downtime. The timeframe may need to be extended, given recent uncertainty.
How can a company generate such revenue? Set a goal and include an amount of rainy day funding in all new and existing business plans. In this case, the money set aside becomes a fixed expense, one like personnel or materials, and the burden for raising the funds is shared throughout the organization.
Move Beyond Excel Spreadsheets
Excel spreadsheets eliminated the paperwork that traditionally came with Old School financial reporting. However, they are limited. Financial data cannot be easily shared. Also, keeping information in sync as departments work with different versions of the numbers can be challenging.
More sophisticated cloud-based tools are now available. They store financial information centrally but still enable authorized users to access it. They have intuitive interfaces, so managers get a quick picture of financial performance. Their “what if” modeling enables executives to examine different forecasts and better understand how much risk looms on the horizon. Because more data is available in easy-to-follow formats, executives make better decisions in less time.
Monitor the Budget More Often
Many enterprises look at their budget occasionally, sometimes every few months, and others annually. That type of forecasting worked well in the past when markets evolved slower and product life cycles lasted longer. Nowadays, the only certainty is market uncertainty. Consequently, executives need to examine their financial status more regularly. How often depends on the firm and market conditions. In growing numbers, corporations are adopting Just-in-Time budgeting, where they examine current financial data at times when the corporation nears a major milestone, encounters an unforeseen problem, or recognizes a new opportunity. In this case, budgeting adheres to market conditions rather than being a task performed in a vacuum at set times.
Address Shortfalls Early
One problem is that many companies hope for an untick and wait too long to address a problem. The sooner an issue is identified, the quicker and less catastrophic the issue becomes. So, be proactive. When appropriate, reach out to employees, customers, and partners and discuss specific concerns compassionately and caringly. Talk through the issue, brainstorm about ways to address the problem, and do what needs to be done, and only then will everyone’s minds be at ease.
Bring in an Expert
Many companies now deal with staff shortages in their finance and data analytics teams. Finding personnel has always been difficult. The pandemic’s Great Resignation made the process even more vexing. The personnel shortfall often results in inequity. Certain team members are burdened with doing the work of two or more people or working outside their areas of expertise.
Getting involved in bidding wars for needed help is not a sustainable option for businesses. Enterprises need to find better options. Outside help is available. Corporations should first examine what they do internally. Work that is performed well should stay in house and items that the firm finds onerous may be offloaded to a third party. The change usually streamlines business processes and energizes the overworked employees.
The business climate has been scattershot recently, and chaos seems likely in the future. As a result, organizations need to adapt to the New Normal. Checking budgets more frequently, adopting modern technology, and budgeting with an eye to DEIJAB enable them to smooth out potential financial rough spots and create a more vibrant, more equitable, more empathetic business.
