Who thought 2020 would be like this? We have made it through the lockdown, subsequent economic shock, and the scramble to put it back on track. Stimulus programs (like PPP) are done rolling out and payment deferral programs from lenders are ending soon. More tailored lockdowns are underway but with no certainty this time of any government support for impacted businesses.
You have stabilized the ship. What do you do next?
The COVID-19 impact is not going to be over soon. “Normal life” is likely at least a year away. Even if a vaccine arrives in 2021, it will likely take many months to become ubiquitous and effective.
Business and Life Changes
Consumer habits developed over decades have been disrupted. Home delivery has taken a lot of market share from a wide variety of businesses. Work-From-Home (now known as WFH) is more widespread than ever. Videoconferencing technology has made managers and many professional service providers, “location-agnostic.” Videoconferencing is still not quite as effective as in-person meetings, but it is far cheaper and getting better every week. These changes have people asking whether they want to go back to in person at all when it becomes available. Residential patterns are shifting away from big cities and toward suburbs, smaller cities and rural areas. Kids are mostly learning from home, disrupting family life patterns. Women are exiting the labor force in large numbers, many of them to proctor at-home learning.
Large numbers of retail stores are closing a shift that has seen a 25-year trend suddenly brought to fruition. Many of those stores have not added much value for decades and can no longer compete with online offerings and overcome the ease of online shopping.
Just a year ago, these were unimaginable changes.
Planning for the Year Ahead
As you create your budgets and forecasts for next year, how do you plan for the tough year ahead? First, every business needs to step back and think deeply about their basic business model.
- Whom do we serve?
- Where is our market?
- How exactly do we add value to our customers’ lives?
- Who else might be positioned to do it better?
- What exactly is our sustainable competitive advantage?
Basic consumer needs have not changed – how those needs are satisfied has. For instance, people still need to eat but they do not need to sit in restaurants to do so. In response, many restaurants are becoming takeout operations. The list of how consumers are meeting their needs has changed across the board. Groceries are being ordered online. Financial services are being provided via teleconference. Netflix and Prime Video are replacing movie theaters. Socializing is happening online instead of in bars. Clothing and home goods are being delivered to our doors with next day or two-day shipping.
Shifting Corporate Priorities
Businesses with dedicated office space are asking themselves if they need a spacious and prestigious address. Real estate in some markets is booming, but vacancies in high-cost markets are at all-time highs. Even if your organization does not have a high-end office, all CFOs and CEOs should be thinking about these trends and how they might impact their organizations in the next couple of years.
Re-Build Your Business Plan
Start building your 2021/22 business plan from the ground up. Ask basic questions. Do not assume that life will return to what it was like before. We are probably not going back to how things used to be. Focus on what is in front of you.
Once you’ve been through your basic business model questions, your entire cost structure also needs to be re-thought in response to the accelerated changes in our culture and marketplaces. Ask yourself:
- What staffing model will we need going forward?
- Do we need the same physical footprint to support that staffing model as before?
- Are we at risk of being disintermediated? By whom? Why? What do we do about it?
Your technology investments will likely need to be higher if you want to be competitive in 2021. Every business needs to have enough of an online footprint to have a seat at the table, while companies that have relied on technology through an app or user-friendly ecommerce website as their competitive advantage will also need to increase their tech budget to stay ahead.
Analyze Cash Flow
After you develop your 2021/22 business plan, make sure it works. Use a professional Cash Flow Calculator to help you ensure your projections and assumptions are correct. The results will help you talk with your lender, investors, and board as you present your needs for funding or additional capital requirements. If your bank has given you a payment deferral plan or covenant waiver, they are likely going to want to see a firm plan for your future operations by next February or March. If you do not have one, they are going to become a lot less understanding of your situation.
You have probably been thinking about these things for months. Now that it is November, it is time to formalize your thoughts into your 2021/22 business plan. If you need some help putting together a formal business plan, CFO Selections can help. We can help you think through these issues. We understand that every crisis also has within it the seeds of opportunity. We’ve helped over 2000 organizations navigate troubled waters over the past 18 years.
About the Author
Bill Palmer has experience with the finances of businesses and nonprofits from multiple perspectives. He was a senior commercial banker in the Seattle market for over 20 years. For the past 14 years he has been a consulting CFO for over two dozen companies and organizations in the Pacific Northwest. For more than nine years, he has acted as the part-time Director of Finance & Operations at a private school where he has a broad range of responsibilities.
Bill also serves as Board Treasurer for a local charity focused on children’s health issues. Previously, he helped found and served ten years on the governing board of a private school, where he built the business model, led the initial capital campaign which enabled the commencement of the school’s operations, negotiated long term loans, and set pricing and HR strategies.