In situations of enhanced volatility, whether it is about accelerated growth or the intense decrease of activity, agility is the key word.
Unlike a relatively constant or seasonally predictable context, following approximately the same pattern every year, with a “regular” and controllable increase, in a volatility context, finance and operations processes are different:
- The monitoring of results needs to be done in real time. Even when working at a lower accuracy level, it is essential that adjustments be made on the main classes of budgeted income and expenses, and of collections and cash-flow payments, respectively.
- The pessimistic approach: the worst-case profit/net cash scenario.
- The inclusion of budget reserves and cash flow required to avoid blockages.
In our current context, we are dealing with the trap of an apparently calm and extremely tempting situation of the possibility to have payment due dates postponed and relaxed.
Therefore, I recommend that entrepreneurs draw up a dynamic Budget and Cash-Flow, i.e., a Business Simulator, where they should continuously update numbers as per latest data and in compliance with the aforementioned precautionary principles.
Work is done in no more than 2 options:
- The worst-case scenario
- The best-case scenario
and monthly results are reviewed paying utmost attention to the cash-flow, not only as far as 1-2 months are concerned, but the following months as well, by taking into account contracted scheduling. And why should it be so? Because it is a must to make sure you are already taking the measures that will help you be in a favourable situation 3, 6, 12 months later, when it might be too late to do something about it.
The Business Simulator is an alternative to classical budgeting, which is static, completely inadequate to current conditions.
We implemented this instrument in companies operating in various fields: horeca, medical, transportation, trade, agriculture.
Do not hesitate to contact me and see how you can implement this tool in your company: ioana@ioanaarsenie.ro
