Moving to the 'new normal' and beyond (part 1)

As government support begins to wind down and lockdown is gradually lifted, organisations are beginning to look to the ‘new normal’. David Lewis, Director of Camrose Consulting, reports.

July 2020

There is no doubt that 2020 will be a year to remember.  Many people started the year with high hopes, but Covid-19 hit the business world like a meteor.  Companies tapped into government support, which prevented an immediate meltdown, but then what? 

I conducted straw polls at the beginning and end of May, which suggest many businesses are moving towards the ‘new normal’, but with a large minority still firefighting. Recent press reports suggest that significant amounts of SME debt will be unsustainable.  

While an immediate meltdown was prevented, the uncertainties are greater than ever. Agility will be really important and while it may not be a panacea, good financial management should help many businesses navigate their way through. For some it will make a crucial difference.

How can accountants help?

Here are some thoughts on areas where you may be able to provide support or at least point clients in the right direction:

Weekly rolling cash flow forecasts:

Extra demands on cash flow often arise at the end of a slump when growth needs to be financed.  At the same time government support will ease off and debt repayments will kick in. It will be really important to anticipate the pressure points.

The article Cash flow – do you have 13 week vision? explains why it’s important to keep looking ahead.  (Some businesses may also need to forecast on a daily basis to manage immediate challenges).

Incisive management information:

• This is much more than using a standard accounts format from a software package. The article Management accounts – do yours ‘speak to you’? explains further.
• As well as KPIs relating to profitability, balance sheet related KPIs (such as debtor days) will be important.
• To truly understand what’s happening, information may need to be more focused. For example, a large customer has been given extra time to pay while it’s sorting out funding – it may be worth producing separate debtor days information for the other customers.

Razor-sharp information will help clients make decisions, compile or adapt plans and, if funding is needed, be well placed to answer questions.

Advice on cash management processes

This includes sound credit control, timely billing, a focus on related KPIs and dialogue with both suppliers and customers. Trust is likely to play a big part and being able to deliver on promises could be very important.

Thinking about risks and opportunities

The business environment is in a state of flux – which means more risks and perhaps some different opportunities. Putting risk on the agenda is useful for both focusing the mind and putting things in perspective.  This will be the topic of a future article.

Business planning

Financial information and risk management should feed into business planning. Modelling may need to be flexible and informative.  With a high degree of uncertainty, it may need to look at more than one scenario.

Funding

Clients will need help with funding proposals and assessing their impact. Invoice discounting may be a good way forward for some businesses once activity ramps up - but the implications will need to be assessed.

Ways to help

The crisis will create an existential threat for some clients and could impact on firms’ recurring income.  At the same time other clients may be able to take advantage of opportunities. 

Either way, accountants are ideally placed to help, even if they are unable to deliver all the support themselves, a steer in the right direction could have a big impact. Solutions may be found through:

• Firms delivering support themselves. (However it is really important that there are appropriate skills and enough bandwidth).  
• Training clients’ staff
• Outsourcing
• Recruitment

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 david@camroseconsulting.co.uk.

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.