We’ve endured the ‘lockdown shutdown’ to varying degrees.
Another term I heard last week was the ‘fiscal cliff’ and it has since been cropping up regularly in conversations. I was talking to a bank and they noted some clients have been doing better than ever. That’s called the ‘Covid bubble’, created by the lockdown limiting travel spending and other entertainment.
So we have the fiscal cliff, the Covid bubble and the lockdown shutdown.
The lockdown shutdown was an unexpected, unknown, unplanned event (called a black swan in investment circles) for retail, fitness, tourism, hospitality and many other businesses.
We know the Covid bubble is deflating.
We are told the fiscal cliff is looming as we come out of hibernation to the rude truth of a reduced economy. We also have some visibility on the time it will take for the economy as a whole to recover (assuming there is no second wave of Covid-19).
We are dealing with known unknowns.
The unknown for many businesses is how steep the cliff will be and how short or long the recovery will be. Planning how to abseil down the cliff and climb up the other side will be different for every business. It will require a deep understanding of the drivers of the business and the ability to monitor those carefully.
For most businesses, it will be a process of scenarios, not so much best case or worst case, but what’s probable. You need specific scenarios based on what the next 12 months might look like for your business – for example, will your online business remain 30% up?
The business scenarios you run will drive revenues and those revenues feed your business’s cash flows. Given the level of uncertainty, the traditional divide by 12 for all expenses will not be sufficient for management or key stakeholders, such as banks.
Advisory Partner offers robust decision support services. We can link a sophisticated financial model to your accounting system and provide the ability to update forecasts as you get greater visibility on your cliff and your rate of climb out the other side.
Call Advisory Partner now.
Brett Plant
Director
P: 07 3106 3399