7 Tips For Revising Your Business Finance Plan During The Pandemic
Businesses that aim to thrive during the pandemic need to revisit their business financial plan to determine their ability to succeed. To achieve this goal, enterprises will have to look closely into their current financial standing and market prospects. Analyzing these key aspects will prove valuable for business owners looking to revise their overall strategy to withstand the challenges brought about by the new normal.
Because things are no longer done the way they used to be, entrepreneurs need to position their businesses strategically to succeed during the pandemic and beyond. Brushing up your skills about finance plans and the factors to consider in amending one is crucial.
Keep reading to find some valuable tips on how to realign your financial plan and promote business resiliency during challenging times.
What Is A Business Financial Plan?
A financial plan refers to any document that reflects an entity’s current financial status alongside the strategies to achieve short-, medium-, and long-term financial goals. A finance plan is created based on a holistic view of various components in a business setting. In studying those components, business planners come up with income and spending projections.
A financial plan is part of a business plan, which underlines a venture’s entire operational strategy and background. Under the business plan, the methods of how to gain revenues are likewise discussed, with critical assumptions on sales and expenses, among other things. If you want to have a comprehensive plan, hiring virtual CFO services is an advisable route to take.
5 Main Elements Of A Financial Plan
It’s essential to understand the following key concepts to find out how to revise your business financial plan properly:
1. Assets and liabilities: What you have and what you owe are good indicators of your company’s financial health. Your assets indicate business properties such as pieces of equipment, product inventory, and other similar possessions. On the other hand, your liabilities may include outstanding bills, taxes, office and warehouse rental, and so on. These are often shown on a business balance sheet.
2. Sales forecasting: This refers to the projected sales revenues for a certain period. Making intelligent assumptions about your annual sales, including peak and off-peak seasons, can help your company plan its marketing strategies better.
3. Expense outlay: This part has to do with various types of spending including regular expenses, expected future expenditures, and associated costs.
- Regular expenses consist of current business expenses such as rentals, utility bills, and productions costs. Marketing and advertising costs are also considered regular expenses.
- On the other hand, expected future expenses are spent on items that’ll likely increase, such as tax hikes and repair costs. Companies may also use this spending to anticipate unexpected costs to recover from natural disasters and other unforeseen occurrences, such as a pandemic.
- Associated expenses are often linked to business expansion costs. These may include setting up a new branch, training new managers and employees, or hiring third-party consultants.
4. Cash flow projection: This is a prediction of how much the business will earn and spend. A good forecast will allow your enterprise to plan certain activities. An example is when to consider pinching pennies or making a significant purchase or investment for your business.
5. Break-even analysis: Analyzing costs and profit per unit produced and sold is one of the key activities under this business finance component. In a break-even analysis, a business will determine how many units they have to sell to cover production costs. This practice is also helpful in determining product or service pricing.
How To Modify Your Business Financial Plan Amid The Pandemic
- Review Your Overall Business Strategy
Developing a good business strategy takes careful planning to come up with sensible decisions. Perhaps no business will ever be fully prepared for the large-scale and heavy losses inflicted by the COVID-19 pandemic. But quickly revisiting your overall business plan and making revisions based on the company’s current and projected economic performance will increase your resiliency.
In the face of a pandemic, be aware of recent changes and restrictions. Discover how you can implement such changes in your business strategies in order to thrive. For instance, if your business needs to close temporarily, consider expanding your digital presence and strengthening online transactions or deliveries to improve revenues and cash flow.
- Make Realistic Cash Flow Projections
Before making some drastic changes to your financial plan, analyze your current financial status and make realistic cash flow projections. Business owners who made rosy projections before the COVID-19 pandemic know all too well that their income estimations needed to be reduced drastically to reflect the situation. Study the present economic situation and analyze how it may impact your customers’ spending capacity.
If your product offering includes a basic need such as food, you may not be as impacted by other businesses. Still, a pandemic will require you to reduce your cash inflow projections because individuals will likely hold on to their cash.
- Analyze The Current Market
Even during tough times, businesses need to consider their market positioning and competitiveness. Without spending anything, conduct a market analysis to know how the current pandemic has impacted your customers’ needs and spending. These factors can affect the demand for your products. Find out how your business can remain competitive and relevant amid the crisis.
Determine how else you can reposition your business despite the shift. For instance, if you’re in the retail sector, consider how you can improve your processes to make online shopping easier for your customers. Decide whether you need to spend more on digital marketing to attract more buyers. If there’s less demand for your current products, check which items you can offer to continue receiving revenues. Of course, you’d have to consider production costs vis-a-vis projected income.
- Know How Much Your Business Needs To Survive
Find out how many resources your business requires to survive the pandemic. This can be a highly challenging task, but it’s not impossible. Develop a worst-case scenario if you haven’t yet and find out your break-even figures, skeletal workforce requirement, and lowest possible earnings to keep the business running. Find out how you can reduce operational spending without compromising your products and services.
Keep yourself updated about government relief programs to reduce business costs further. During a pandemic, agencies may offer interest-free loans, deferment of mortgage payments, and tax relief to qualified entities. See how your business can take advantage of those cost-saving programs. Review your business insurance policy, and check whether you’re entitled to file for claims.
- Learn How To Optimize Costs
After finding out how much you need at the minimum, you have to:
- Check how your business can reduce costs on non-essential spending.
- Focus on operational efficiencies rather than cutting operational costs across the board.
- Identify the expenses you have to maintain and determine costs that may be further reduced—again, without negatively impacting your customers.
Don’t forget to continue reaching out to your clients to understand how to serve them better during challenging times. In addition, try to negotiate with your landlord to reduce or waive rental costs, and ask for extended payment terms from suppliers. If you have to, sell some of your business assets to downsize.
- Aim To Strengthen Your Current Financial Health
After analyzing your business’ fiscal health and developing strategies to optimize costs, think of other ways to adapt to the crisis by building up your savings and increasing revenues. This may be a tall order during a pandemic, but it’s in these trying times that you must strive to increase cash inflow.
While keeping your earning projections conservative, make some adjustments to how you conduct your business to stay resilient. Some companies may consider price cuts to encourage a steady stream of customers. While this may work in some cases, it isn’t the only solution to your limited cash flow.
For example, as gyms were temporarily shuttered amid the pandemic, owners and instructors began offering their services to health buffs online for the same price. Clients didn’t complain about the fees because their instructors offered value-added services, such as a free diet plan with their monthly subscriptions.
- Establish Better Cash Flow Management
Enterprises rely on cash inflow to keep going amid any crisis. Review your financial plan and see whether you need to make changes in facilitating a shorter cash cycle. Often expressed in days, the cash cycle or net operating cycle is a measurement describing the time it takes for a business to recover its input in cash. This metric indicates how much time the company needs to sell its products, how long it takes to process account receivables, and the length of time required to fulfill its payables or bills.
In a pandemic, a company must streamline its cash cycle by making collections more efficient. Requesting upfront cash payments or offering discounts are two ways to encourage customers to settle their accounts earlier. Conversely, manage spending better by slowing down your accounts payable, particularly for non-essential bills or those that don’t incur interest charges.
Consider automating your inventory system to determine and manage your costs better. Knowing how much inventory you need in a specific period can help you reduce overspending. Additionally, identifying stocks that have to be disposed of as soon as possible can shorten the cash cycle and lead to better cash inflow.
The Bottom Line
As a proactive approach, every business plan must include strategies to help prepare for worst-case scenarios, including all types of crises. Businesses should seize the hard-taught lessons brought forth by the current pandemic to better prepare for the future. The tips discussed earlier can help entrepreneurs make better business decisions even before a life-changing disaster could strike.