Sarah Balsom, Senior Manager, Financial Advisory, Quantuma explores if now is an appropriate time for business owners and management teams to revisit their forecast recovery and growth plans in what we hope to be a ‘post-Covid world’?
Like many of my colleagues, friends and family, I watched the Chancellor’s Autumn Budget statement with much anticipation.
Acknowledged as the worst economic crisis on record, the Covid-19 pandemic has changed the world that we live in. The latest Budget statement represented a pivotal moment for the UK Government in forecasting the UK economy’s route to restoration post-pandemic.
With the Chancellor’s financial plans for economic recovery now in the public domain, it is clear that our economic problems can’t be solved overnight. The same can be said for UK businesses, many of which were hit hard by the pandemic’s far-reaching and damaging impact.
As Covid government support initiatives wane, business costs rise (most notably energy, transport and labour costs), and some sectors continue to struggle with supply issues, preparing a robust financial forecast for your business has arguably never been so important for corporate survival.
The importance of financial forecasts
Nobody has a crystal ball, however preparation of a credible financial forecast is not a dark art.
The starting point, or the anchor, for any financial forecast is to accurately reflect the current financial position of the business. During these turbulent times, it is crucial for corporate boards and management teams to provide stakeholders (be it lenders, shareholders, employees, or any other party with an interest in the business) with clear visibility of the full impact of the pandemic to date – the back story.
Once this anchor is established, the challenge for robust forecasting is for businesses to prepare a plausible assumption base which draws from historic business performance, anticipated future prospects (minimum two-year projections), market insight and the current/forecast macro-economic climate.
Many a management team or corporate board run away with pipeline sales growth in their forecasting process, with little thought to the business’ future underlying cost base, ultimate bottom line and arguably most importantly, forecast cash position.
Time to look at your recovery and growth plans
With the expectation that company insolvencies are on the rise in the coming months, now is the time to revisit recovery and growth plans, paying particular attention to the scrutiny of assumptions applied and understanding whether the recovery/growth plan requires additional working capital to avoid a cash squeeze which, in the unfavourable conditions, could result in business failure.
In recent times, I have worked closely with a number of business owners/management teams who have required additional financial support to fund post-pandemic recovery plans and growth ambitions.
I have seen that despite the macroeconomic headwinds facing the UK economy, there is still ample appetite to lend, albeit with significantly increased scrutiny being placed by lenders on the financial information supplied by management teams to support their credit applications.
For those businesses I have supported through this process in recent months, I have found that unless a lender is presented with a robust, fully integrated, minimum two-year financial forecast, which can stand the scrutiny of my team, the hope of obtaining this additional funding to rebuild their business post-pandemic is cut short pre-credit application.
It seems that with ample liquidity present in the lending arena, the key hurdle for many businesses in this turbulent world that we live in falls to the importance of a robust post-pandemic financial forecast with supporting narrative.
With our assistance, our clients have presented prospective lenders with an independently verified funding request, accompanied by sufficient supporting financial information to allow the prospective lender to make an informed credit decision – working together to rebuild and future-proof businesses post-pandemic [BusinessDesk].