With global geo-politics in flux, combined with the disruption and turbulence caused by COVID-19 and Brexit, times are tough for UK business. Innovation and agility are key to differentiation, but are simply no longer enough if operationally and financially, businesses are not in a position to take advantage of opportunities that arise, in near real-time.
How can businesses optimise their financial acuity to maximise opportunity and minimise risk in a volatile market? Peter Bracey, Managing Director, Bracey’s Accountants, outlines how businesses can make sure they are geared up to ride out the Covid long-tail.
No one would have expected 2020 to turn out the way it did. The Covid-19 pandemic was primarily a global health crisis, but it has caused many, many economic repercussions. The combined effects of the pandemic and the necessary mitigation measures, such as prolonged lockdown, the furlough scheme and VAT payment deferrals, have placed as yet unmeasured strain on many businesses. It has forced businesses to rapidly make extremely difficult decisions in order to survive and, as we get into 2021, many companies are still reeling from the aftermath.
Organisational agility was once desirable, but is now central to business recovery. Innovations that might have taken years to evolve, have revolutionised products and services in a matter of months. The way we work is different and both businesses and consumers alike have a far keener focus on the value they gain from a transaction. On reflection, businesses that rapidly embraced agile and kept a keen eye on profitability have leaped forward and will remain best positioned to grasp opportunities that arise.
If nothing else, 2020 has delivered key lessons that any healthy business must embrace.
With the onset of Covid, the vast majority of businesses were forced to quickly address their biggest expenditure: staff overheads. Most organisations carry a certain degree of ‘fat’, in anticipation of peaks and troughs in supply and demand. But with Covid-19, businesses needed to become leaner straightaway, with a core focus on critical roles.
The smartest businesses applied this same lean approach to their P&L. Assessing every department, every product and service, indeed every line on the balance sheet to identify areas of loss and areas of profit, provided essential insight to support critical decision-making. And, crucially, understand where opportunities for innovation might lie.
We’ve all heard the saying, “Cash is King” and Covid-19 has brought this home with a vengeance. Despite government grants, loans and tax relief, come March 2021, businesses will have to start paying back deferred VAT as well as the usual VAT payments; those that have not budgeted for this may yet, unfortunately fail to ride out the storm.
In addition to enforcing leaner business practice, 2020 challenged collective thinking around how and where we work. With face to face in many cases not possible, or heavily discouraged, video conferencing; Zoom & MS Teams calls; Google hangouts have become standard practice and it’s certain that hybrid working is the ‘new normal’.
Not only is this now giving businesses access to new talent, irrespective of location, it has placed new emphasis on cloud technologies that enable real-time collaboration and communication. Covid-19 has emphasised the importance of throwing away traditional, redundant practices that simply do not work.
Similarly, this applies to a company’s financial position. What value does a business get from historic, arguably irrelevant financial data? During Covid-19, what decision makers valued was expert advice based on real-time insight to company finances to work out new finance models to support a burgeoning ecommerce business, for example. Or support in making a business case for the government’s R&D tax relief scheme. These are not business cases that can be supported by paper-based ledgers or shoeboxes and receipts.
With many businesses hoping that 2021 will see either a reversal of the catastrophe of 2020 or a continuation of innovation, success and expansion, what is clear is that financial acuity is key to good business decision-making. It underpins having the right level of investment – be that people, product or service – in the right place of corporate operations; it is the foundation for understanding where the quality in the business lies; and it is the key to ensuring you have the skills and opportunity to embrace innovation when it arises.
Covid-19 should have made businesses realise that it is vital that they understand their own finances. And not just once or twice a year, but constantly having an eye on fiscal health. It might seem a glaringly obvious statement to make, but the truth is that too few companies had the real-time insight – and the trusted support – they needed to make informed decisions – and we have yet to find out just how many have failed as a consequence.