Moving to the 'new normal' and beyond (part 2)
Consultant David Lewis deconstructs some of the effects of the pandemic on business into potential risks and opportunities.
No one really knows what the 'new normal' will be...and whatever it is it will probably change over time. However I think it is fair to say that we are in an uncertain period where risks and opportunities abound. Arguably businesses that make the right calls now will reap the rewards in due course. Where businesses have limited financial resources there may not be much room for error.
Managing through uncertainty
Some business decisions can be complex, there will be a range of influences, the first image gives an overview.
At the same time operationally, there may be lots of balls to juggle, as illustrated in the second image.
A risk perspective
As individuals we’ve all made decisions as we start to emerge from lockdown such as whether to use public transport and the places we will and won’t visit. While we often make decisions instinctively, we subliminally consider:
- How likely something adverse will happen (or something good won’t happen)
- How big its impact could be
- How much risk we are prepared to accept
While instinct is important, where there is complexity it becomes less reliable. Charities and larger businesses tend to have structured approaches to gain a deeper understanding of risks and opportunities; this informs decision making and steers the business towards what’s required to keep things on track.
It may not be realistic to expect small businesses to take such a structured approach. However in a fast changing environment it may be helpful to keep questions about risks and opportunities firmly on the agenda, in terms of:
- Keeping an eye on known key issues
- Being mindful of new risks and opportunities as they emerge
- Being prepared to explore important complex issues in more depth.
Agility and effectiveness
Things change. Sometimes things don’t work out as expected. The ability to quickly identify issues and then respond can be improved if there is:
- Relevant information - which may not just be accounts.
- A supportive culture where staff aren't afraid to let the bosses know bad news.
While it is not possible to provide an exhaustive list. Issues that may need to be considered as we emerge from lockdown include:
- Changes in the way business is done. The CEO of Microsoft recently said “We have seen two years’ worth of digital transformation in two months”. There could be opportunities to gain competitive advantage and improve efficiency.
- Cash flow and business continuity. Extra demands on cash flow often arise at the end of a slump when growth needs to be financed. Government support will ease off and debt repayments will kick in. As well as ‘business as ‘usual’ cash management, the potential damage caused by a customer or an important supplier going under will need to be borne in mind.
- Health and safety for both staff and customers
- Staff management and well being
Businesses may decide to make some major changes. In my experience, big projects need to be given due respect – while success should reap big rewards, problems can be costly and may be a cause of friction. You may wish to read my tips for getting better project outcomes.
In many small businesses bosses spend more time working in the business than on it. Encouraging clients to step back and think about the big picture will help them be on the front foot in a changing and uncertain environment.
Thinking in terms of risks and opportunities should lead to better decisions and outcomes, both strategically and from a day to day perspective.
Accountants are well placed to facilitate discussion and be a critical friend. While formal risk registers may be a step too far, putting risk on the agenda should improve resilience at what will be an important time for many companies.
David Lewis provides due diligence and financial project support through Camrose Consulting Limited. Projects can be delivered direct to clients or on a subcontract basis via their accountants. David can be contacted on 07836 331677 or firstname.lastname@example.org.
This article is for general information and interest and may not be comprehensive. Specific circumstances will also vary. We do not accept responsibility for any loss arising from any person or organisation acting or refraining from acting based on information contained herein.