2020 was the year that brought near-continuous change to UK businesses. ‘Lockdown’ was declared the word of the year, encapsulating the incredible disruption business leaders faced.
2020 was the year that brought near-continuous change to UK businesses. ‘Lockdown’ was declared the word of the year, encapsulating the incredible disruption business leaders faced. Yet, many are now looking forward – 70 percent of small businesses leaders surveyed are optimistic about the year ahead.
Of course, a return to ‘business as usual’ isn’t imminent. Entrepreneurs will need agility – constantly updating business scenarios, overhauling projections and creating new contingency plans. Without this approach, trying to implement a strategy to balance short-term agility and long-term development will be tough. With so many variables, businesses need to focus on their foundations to work from a source of truth, and use that information to sustain, adapt or grow.
Examine all business operations
A crucial starting point is to evaluate the entirety of your business operations through a comprehensive situational analysis of each department, with a focus on the elements that have withstood the shock of 2020 and those that were most adversely affected. Assess and re-evaluate KPIs around customer churn, retention and improving the order-to-cash cycle, as these will not only measure your current state, but also help to inform decisions on what to do next.
Determining which customer segments are still strong, buying and actively engaged is crucial. Given the impact on certain sectors over the past year, businesses should focus on those that are able to spend versus those that are still stuck in survival mode due to the stop-start nature of restrictions in the UK. Assess your sales channels and, if possible, shift more resources to the best performing sectors whilst also still supporting and listening to customers and prospects. Make sure to communicate with your employees and present a clear vision to customers.
Maintain the focus on bringing in cash
For much of 2020, businesses were understandably focused on cash – taking stock of the resources in reserve, outstanding receivables and pending liabilities, then making estimates of how much cash the business will need to maintain operations. The regularly evolving restrictions that UK businesses face means the ‘cash is king’ mantra remains true in 2021. A fall in demand or disruption to the supply chain will have an immediate effect on cash flow, and new regulations are being introduced to safeguard small businesses against late payments.
These actions will continue to be crucial but there also has to be a shift towards reforecasting and identifying pockets of budget that can help shift priorities. For example, finance leaders can actively reallocate resources to business lines with strong existing revenue streams and optimise the company’s use of alternative, innovative sales and delivery channels, such as direct-to-consumer. They can also help remodel recurring revenue for continued cash flow. In a period of prolonged instability, subscription or license-based offerings will be more appealing to customers and prospects than large one-off costs.
Accelerate financial planning and analysis
Forecasting is hard in normal times and becomes even tougher when there is no guaranteed timeline for ‘normal’ operations fully resuming. Even so, business leaders must build out a handful of scenarios that are grounded in reality and assume a wide range of outcomes. Every organisation must relook at its forecast for sales, expenses and cash flow and retest its assumptions. These scenarios should include modelling cash flow, burn rate and liquidity under multiple scenarios.
This planning needs to be organisation wide. From finance and sales to marketing and operations, reporting and analytics are core to the planning process and can provide one integrated, company-wide plan. Once cash flow is under control and budgeting is being carried out in real time, leaders must accelerate forecasting, using continually updated business information to strategically plan for every eventuality. Real-time analytics help enable businesses to make fast decisions. It is about producing actionable insights built on historical trends, current conditions and likely scenarios so decision-makers are enabled to forecast what may happen next.
Use data to guide your direction
Before getting too far into the budgeting process, leaders must work to re-evaluate expectations. Establish goals, then outline assumptions for achievement that all departments understand and agree upon. But how do you determine those expectations based on past trends?
Collecting data from across the organisation can be a painful process, especially if it sits across a blended mess of systems and isolated departments. Any time data passes from one system to another, there is room for human error. Clearly outline all sources of data needed and establish a cadence of collection. Highlight areas of concern where the most risk exists in the process and seek to close the gap. Many organisations turn to a single system that will aggregate all data, enabling business leaders to have a comprehensive and agreed-upon view of performance for budgeting.
While no one knows exactly how 2021 will play out, there is cause for cautious optimism. One thing is certain – the stakes are high and being able to evolve quickly and make fast, well-informed decisions from a solid foundation is even more critical.