COVID Clarity: Business Lessons Learned During Uncertain Times

Part Two of Three-part Series

The first article in this series discussed the business and emotional challenges to leading your team through the challenges of a COVID environment. This article focuses on the financial fitness of businesses and how to attain COVID Clarity.

COVID Clarity is a term coined in Article 1 to describe the central lessons business owners have learned about navigating their organizations through the pandemic. These important realizations will help you gain the wisdom necessary to make tough decisions and to continue to move your company forward.

All stakeholders of your company rely on your organization’s financial soundness. When sales and business activities are strong, key foundational practices can easily be overlooked. A crisis has a way of revealing underlying issues – and creating new ones.

Adaptability is a key element in Darwin’s theory, “Survival of the Fittest.” A virus (like the coronavirus) must adapt to survive and replicate.  Can Darwin’s theory and principle apply to businesses faced with economic chaos and uncertainty? … Absolutely!

Just as a virus adapts to its conditions to ensure its survival, a business must adapt to ensure sustainability. Let’s look at key elements that provide COVID Clarity, and the adaptability measures necessary to strengthen financial and operational decision making.

COVID Clarity – “All Roads Lead to Financial Results:” Let’s explore business adaptability from three perspectives, Past, Present and Future, while employing your financial statements: The Balance Sheet, Profit & Loss Statement and Cash Flow Statement:

  • Past: Financial statements truly reflect business operations. Adopt good controls, accounting functions and integrated systems to ensure timely and accurate financial statements. Historical financial statements are an invaluable tool to assess past performance and financial practices.
  • Present:  Understand your Balance Sheet – since it can inform you where you are at a moment in time, and hint at the sustainability of your business.  The Cash Flow Statement can also give you a great snapshot of where you are Interpreting the Cash Flow Statement can help determine the right cash reserves to manage emergencies or a hostile environment such as a pandemic. Keep in mind that cash in, less cash out, means neither profit nor personal disposable income.
  • Future: Create “Financial Adaptability Plans”- While keeping your strategic mission and goals in mind, use your current financial information to formulate adaptive assumptions. Employing financial forecast modeling based upon those assumptions helps to quantify risks and rewards in navigating a path forward.

Start with worst case scenarios, then add additional scenarios based on timing, and market and business assumptions. Change assumptions contemporaneously as new information emerges.  This provides another datapoint for sound decision-making. Use relevant software tools to create agile adaptability plans and make informed decisions quickly. How often are you challenging your assumptions?  Do you have the right tools and measures to make timely, informed decisions?

In a recent conversation, a business owner shared the importance of implementing an ERP (Enterprise Resource Planning) system that allows for real-time access to financial data, lead indicators and performance results. The business owner found it to be a game changer for making smart and timely decisions.

COVID Clarity – “Cash is KING:” Challenges to cash controls, reserves, and financing has put Cash Needs into the forefront for all business leaders. There is little room for error, considering the average small business maintains only 27 days of cash reserves. Preserving cash requires many decisions: reducing expenses, renegotiating payables, renegotiating receivables applying customer loyalty measures, and the most difficult of decisions around employee retention, lay-offs and furloughs. Additional decisions regarding financing and relief opportunities are weighed against your future ability to pay (or in some cases, to be forgiven).  Whatever tactics that you apply; cash flow forecasting is essential.

Some business leaders manage weekly cash flow, with a 12-week forecast, so that all adaptive tactics are accounted for, updated for actual and adapted again. These cash flow projections are often monitored daily. Employing software tools is essential. This process helps business owners make decisions with greater clarity and insight.

How many days’ cash reserve does your company maintain? Will your business have enough cash reserves to survive the next three to six months?

COVID Clarity – “The Lure of Forgiveness:” Financial relief opportunities can be crucial survival tools during times of crisis. The Paycheck Protection Program (PPP), first enacted in late March 2020, garnered considerable media attention because the program prescribed that PPP funding could be “fully forgiven.” Business owners quickly learned that, although it sounded attractive to receive money that could be “100% forgiven,” the reality was not as expected.

Business leaders became distracted by the “lure of forgiveness” and strayed from their true strategic core mission and goals of their business. The “forgiveness” portion of the loan became increasingly more limited, regulated and administratively burdensome. Businesses were spending money quickly but not using the money for ensuring the continuity of their business. Often, non-working employees were paid regardless of contributing productively to the sustainability of the company. How have projected “forgiven” amounts preserved your company’s future?

While strategic goals will surely need to be adapted during a crisis, DO NOT STRAY from your mission while applying these adaptive tactics.

COVID Clarity has taught us that all roads lead to financial results; that cash is still king; and that we need to be steadfast in the company’s strategic mission. Applying software tools to maintain accurate and timely integrated financial reporting systems is paramount to making informed decisions and possessing the agility necessary to adapt assumptions and scenarios. This function is critical to the success or failure of any business, and especially critical during a crisis. Increasingly, the digitized business environment is becoming more important than ever as a competitive tool.

No matter what a business does operationally, or in the marketplace, the financial feedback through proper reporting systems and analysis is a vital tool and platform that helps create the path forward to business sustainability. Go forward; adapt and thrive into the future with pure COVID Clarity!

Contact either Larry Prince at [email protected], or Marie Benedetto at [email protected]

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