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Financial Planning in an Unusual Year

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Financial planning has never been a particularly easy task for companies, but the pandemic has made it even more difficult. Those charged with creating viable budgets are used to accuracy, consistency, and fairly predictable planning cycles — not the uncertainty their organizations are living with today. “The five-year plan is no longer relevant,” says Bert Miller, President and CEO of MRI. “It is more like 24 month sprints. Financial planning and modeling now requires a new approach predicated on flexibility, resilience, and the ability to respond quickly to change.”

Although the primary focus for most companies is to determine how they will survive the worst of the crisis, there is also an opportunity to initiate discussions about how the overall planning process needs to change going forward. “As a first step, companies must develop a clear view of their starting position in the aftermath of the pandemic,” says Miller. “This includes past and current market trends, as well as potential future indicators. Take a look back to the 2007–2009 period to consider what you could have done differently then.” He recommends reviewing your 2020 financial plan to determine what assumptions need to change as a result of the pandemic.

Identify the latest trends and key drivers of your business. Comparing the inputs that had the most operational impact before the crisis with the key drivers of the business since the crisis began is critical to developing a financial plan for 2021. What has changed? What specific risks have emerged? How likely are these drivers to be affected by uncertainties in the market? It’s also important to look at business drivers within the industry — vendors, customers, and geographies — to see how these have changed throughout the pandemic.

Revise your initiatives. Once you understand your position in the marketplace, you can work on adjusting your company’s initiatives to find the right combination based on the current reality. Some of the initiatives in your 2020 plan will remain, some will be jettisoned, and new ones will emerge as a result of the crisis. “You might need to shift resources away from products or services that have seen a large drop in sales due to the spread of the virus and toward those that are holding steady,” says Miller. “You might also decide to convert product lines to meet needs brought on by the pandemic, or to invest in advanced technology to help you reach your customer base. Of course, these adjustments have wide-reaching impacts that you need to consider. If you shift to focus on e-commerce as your primary sales channel, for instance, it can cause a ripple across traditional distribution channels and models.” 

Consider implementing monthly forecasting. Many organizations perform a quarterly forecast, but executives are increasingly expecting a forward-looking view of the financials updated on a monthly, or even on-demand, basis to adjust projections and incorporate new approaches quickly. “Given changing market conditions, identifying core drivers and metrics monthly may prove to be a more valuable exercise than executing a detailed long-term plan,”

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