New Delhi, India

Financial Planning in Times of COVID-19

By Chaitanya Kumar, SKC World

The COVID-19 pandemic has affected all of us. The intensity of the impact may vary, but no one can deny that they have been affected by this in one way or the other.

Besides the health scare of COVID-19, the biggest hit that the world has taken has been financial. The months of March, April, and May 2020 were the worst clash for most countries, and as governments started easing norms gradually, some business activity started recovering during the months of June and July 2020. However, the impact which the closure of 2–3 months had on the economy and businesses would take a lot of effort, time, and planning for organisations to reach back to the levels they wanted to be before the COVID-19 crisis emerged.

As most of the businesses were trying to get back on track in the last few months, how they plan their financial strategy is going to be very crucial and may ultimately define how quickly and effciently they are able to turn around their businesses. Finance broadly revolves around two aspects – profitability and cash flow – and your plan needs to ensure that both are met. Also, any aspect of planning should cover for both short-term and long-term needs of the business, else the decision-making can be flawed.

Considering the above, below are the five key areas of financial planning that every entrepreneur must ensure in order to rebuild their organisation during and post COVID-19 crisis:

1. Manage Existing  “Cash” Frugally

It is aptly quoted in the business world that “cash is king”, and current times best depict why this age-old saying holds true. This is a period where debtor recovery may be slow, old piles of inventory may not get sold off in anticipated time, and still fixed expenses need to be paid. In current times, it is important to split your expense types into the following broad categories:

Mandatory spends: This would include payments like salaries, rentals, and buying raw materials, which are necessary for your business to run on a day-to-day basis. Provisions need to be made to pay off these expenses first.

Luxury spends: These would include expenses like sponsorships, renovations, and so on. These are the expenses which may not directly add revenue or increase business. These expenses should ideally be put on the lowest priority in your budgeting.

Discretionary spends: These would include expenses on marketing, process improvements through technology, and so on. To finalise what and how much needs to be spent in these heads, careful analysis should be done to identify the return on investment that you expect to generate per unit of money spent. This analysis may lead you to reduce your budgets in these heads, if not eliminate them.

2. Create Business Sustenance Model

It is of prime importance that you first assess the minimum volume of business that you think you can do, with a reasonably high degree of certainty, in the current financial year. Then make sure that all processes and systems are in place to assure delivery of this assured business and earn profits from this.

This would require you to assess your costs associated with the probable revenues. For planning at this level, you would need to be cautious that this minimum level of projected revenue covers both direct and fixed costs.

Do not include the possible growth scenario figures at this stage, and plan considering the worst-case scenario. This planning, once done, will settle you emotionally too, while creating a financial model that will give reasonable assurance that you can keep your ship afloat for a year or so comfortably.

3. Create Growth Scenarios

Once the minimum business plans have been made and restructuring implementation plans have been rolled out, it is then time to plan for possible growth scenarios to start building up from the base of your minimum projections.

Here you would need to answer questions like:

  1. What products/services can sell in the emerging scenario?
  2. What would be the profit margins?
  3. Additional fixed costs and investment that would be needed to support higher sales.
  4. The additional need for working capital.

This growth model needs to be built in a way where costs increase proportionately to the revenue and not as a lump sum investment (unless liquid funds are not an issue or future revenues are guaranteed through confirmed orders, advances received, etc).

4. Create Investment Pools

For most businesses, a lot of expenses would be deferred this year. But this would not mean that these expenses will not be required to be made in the coming months.

Pools would need to be created for those from today so that the financial burden can be spread over months. Set a goal for each pool of investment with a timeline, and then identify how much you would need to save for each monthly in order to reach your financial goal.

5. Funding Strategy

Besides other things, any growth initiative would need funds to act as bloodline for any organisation. Thus, it is essential to keep your funding options open and evaluate them.

Knowing your capacity to raise funds is not the same as actually raising them. It would be useful if you have evaluated areas like:

  1. Bank funding – short term against inventory, collaterals, professional loans, cash credits, overdraft facilities, etc.
  2. Project funding.
  3. Venture capital or private equity investors.

The intent of doing the above is two-fold:

  1. To evaluate how much capacity expansion can be done so that you could pitch for orders accordingly.
  2. Give you peace of mind that all is not lost.

Financial planning is nothing new, or something that has been triggered by COVID-19. However, the urgency and importance of ensuring that we relook at our financial planning, and modify it with the current needs, are what we need to embrace. The current situation demands that all financial planning be done with a greater degree of caution, along with the right amount of planned adventurism, instead of completely going overboard.


Chaitanya Kumar

Chaitanya Kumar

GGI member firm
SKC World
Advisory, Auditing and Accounting, Tax
New Delhi, India
T: +91 11 41324 619
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GGI Insider, No. 111, January 2021 l Photo: saiko3p - stock.adobe.com

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