Change of Plans: Forecasting in Times of Uncertainty

By: Alex Wunderlich

In January, if your business forecast included downside risk from a global pandemic, people would’ve thought you were crazy - and rightfully so. The social, economic, and public health impact of Coronavirus quite literally came out of nowhere. But now that we’re living in a new reality, it’s time to adjust your game plan and figure out what to do next. 

There are still quite a few unknowns, like how much longer this will last, how regulations will change, and what the long-term consequences will be on the economy. But one thing is for sure - nearly every business will need to adjust their 2020 plans in some form. 

Depending on the industry you’re in, this could take many different forms, so here’s a general framework to help you think about the impact of Coronavirus on your business and finances.

The most obvious starting point is revenue. If you’re selling hand sanitizer or video conferencing software, lucky you. For the majority of businesses, however, there will likely be a negative impact on sales. Whether that’s due to a slowdown in consumer demand, supply chain disruptions, or lost productivity due to your staff working from home, you’ll need to update the assumptions in your forecast to reflect the current market realities. Think critically about the supply/demand dynamics, and how prices, volumes, and long-term growth patterns will be affected.

On the expense side of the equation, there are some different considerations to be made. Will you need to purchase new software tools to enable your team to work remotely? If you manufacture or sell physical products, will your cost of goods sold increase due to supply shortages? You may see a few unexpected cost increases, which are never fun, but necessary to acknowledge and adjust around.

However, on the bright side, you could also see some cost savings. Cancelling or reducing business travel could free up some cash, and if your team is working remotely, you’ll likely spend less on office supplies, team lunches, events, etc.. Additionally, if business activity slows, there will almost certainly be a reduction in variable costs. While these aren’t necessarily “good” things, they could help to get you through these unpredictable times.

Now, cash flow is where things get tricky. Economic shocks always have a ripple effect, and if your customers or vendors are struggling, the dynamics of your cash flow could change quite a bit. You might suddenly find it more difficult to collect on overdue invoices, and your vendors may start demanding stricter payment terms. Even if your revenues and expenses don’t change one bit, this could still accelerate cash outflows and slow down the cash coming into your business. Make sure you're ready.

It doesn’t mean the sky is falling, but again, you’ll need to account for this stuff in your forecasts so you can plan around it. See if you can switch things around as much as possible, and consider securing short-term lending or something to bridge you until things get back to normal. At the very least, have a plan in place in case things get tight.

And if it’s still too early for you to know exactly how you’ll be impacted, or how long this will all last, now would be a perfect time to build new best- and worst-case scenarios into your financial model. You can’t always predict the future, but you can prepare for the most likely outcomes, so think realistically about the downside risk to your business, and what recovery looks like. 

Our mission is to help you better understand your finances and plan for the future, and in times like these, it’s more important than ever. Now is not the time to panic, but it is time to be proactive. We want you to know we’re here for you no matter what, which is why we’re offering our time to anyone who would like to discuss the impact of Coronavirus on their business.

Schedule a call with our team and we’ll help you unpack the drivers that could affect your business the most, and talk through a strategy for coming out the other side better than ever. We’re not just in the business of selling software. We’re here to empower small business owners and advisors: Let’s get to know each other

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