For many companies, the end of summer marks the planning period for the next year. It’s a time when finance teams look back on historical trends to assess the financial and operational health of their business, and to forward-looking indicators to develop plans and strategies for the next 12 months or beyond. Or, at least this was the case during normal, more predictable times, but today is anything but normal.
The global economy continues to present companies with unprecedented challenges and volatility. The Fed just implemented its fifth consecutive rate hike, and the European Central Bank has done likewise. Borrowing costs are at their highest levels since 2019. When CPI declined more than expected from July to August, equity markets were sent spiraling. Additional uncertainties influence the global economic landscape - the Ukraine-Russia conflict, high energy prices, supply chain and logistics challenges, weak demand in China due to Covid lockdowns, and rapidly deteriorating demand in Europe.
These stresses are reflected in Q3 news: changes to capacity and inventories, earnings warnings and 2022 financial guidance withdrawn altogether, and recent layoff announcements.
Responding in The Face of Uncertainty
What all of this tells us is that the future is very much unknown and very hard to predict, but there are steps financial and operating leaders can take in this time of uncertainty to drive performance.
Engage in resilient budgeting. Go beyond adjustments to historical trends and budget roll-ups by business unit. To provide flexibility and resiliency to environmental changes as well as gain buy-in and accountability, incorporate data-driven assumptions, consider interdependencies, scale costs with revenue, and iterate.
Focus on working capital management. Cash is king, and liquidity is as critical as ever. Well-integrated O2C, P2P, and inventory/S&OP functions optimize working capital and provide cushion to weather volatility. Working capital metrics are typically one of the leading indicators of trouble in the ecosystem; analytics and dashboards can help to spot potential issues on the horizon.
Know your customer. Reinforce relationships that matter most to your business. Strong partnerships increase business resiliency. Paying close attention to those relationships will allow the business to quickly respond to the needs of its customers and maximize revenue opportunities.
Manage organizational stress. People persist as one of the biggest challenges to stability. Stresses continue to emanate from uncertainty driven by economic fears, hybrid work environments, and home spending inflation, resulting in high turnover which in turn exacerbates stresses on remaining employees. Evaluate and align the organization to facilitate a stable, productive environment.
How do you plan when the only certainty is that there will be uncertainty? Protect the core - your customers and organization. Build in cushion and flexibility with strong working capital and a resilient budget. Be vigilant, flexible, and ready to turn with the curves in the road coming ahead.
© Copyright 2022. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
