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Business planning in a time of uncertainty

Author: ICAEW Insights

Published: 24 Feb 2023

With financial and economic upheaval a regular fixture on the business landscape, and with uncertainty rife, how should businesses approach forward planning?

Planning ahead is always difficult in an uncertain world, but in recent years it has felt as if the unpredictability and volatility of markets and economies is reaching new extremes. Almost four years of political and economic turbulence before and after the 2016 Brexit Referendum (reverberations from which continue today) were followed by the pandemic – with its lockdowns, forced reinvention of many business models and huge disruption to supply chains. 

In 2022 Russia invaded Ukraine, adding to inflationary forces and exacerbating an energy crisis and supply chain problems; meanwhile political events in the UK added further financial and economic upheaval. As 2023 began, the energy crisis and inflation continued to cause enormous difficulties, while many businesses were also affected by labour and skills shortages and (directly or indirectly) by industrial relations disputes. For businesses operating in the UK, where relative stability was once taken for granted, uncertainty and instability seem to have become the new normal. 

“There’s never been a time I can remember when it’s been so hard to plan ahead,” says Chris Petts, a restructuring partner at Grant Thornton UK. “I’ve had a number of clients say: ‘How on earth am I supposed to forecast?’”

The nature and severity of planning difficulties will vary according to business size and type, but there are some useful principles businesses can follow.

“The key is scenario planning,” says Chris Grove, a corporate finance partner and the head of transaction services at BDO London. “At least if you’ve taken time to think about what things might be like in two to three years, you’re going to have a better chance to respond in a measured way when something unexpected happens.”

Planning must also be based on understanding exactly what is happening in your business today, says Petts: “You need to really understand where you make money, where you don’t, what your capacity is and where your constraints are.” Businesses also need to monitor and understand what is happening in the markets where they operate and within supply chains, while monitoring relevant regulatory developments – around environmental, social and governance (ESG) issues, for example. 

Once the business has gathered the data needed to understand its current position and the broader context, a clear, realistic assessment of its prospects is essential, says Petts. Business advisers, including accountants, may also play an important role here, providing independence and clarity. “It’s important that you have a bit of independent challenge,” says Petts.

He thinks one reason why the number of businesses to have failed during the past three years is not so great as had been feared is that recent events forced many to pivot and recalibrate operations and strategy, giving them an extra layer of resilience: “People will have looked at every cost point and explored every avenue, and they probably understand their businesses a lot better than they did.”

Former ICAEW president Andrew Williams, now a portfolio finance director and non-executive director, thinks some owner-manager businesses – an area in which he specialises – have been better equipped to survive recent turmoil than have some larger enterprises. “Yes, it’s difficult, but the most nimble companies can cope,” he says. “The ones that can’t cope are big PLCs and big public sector organisations where there are multiple layers of bureaucracy that can make taking action difficult.”

By contrast, he says, the most agile businesses have been able to plan effectively and to exploit new opportunities. “One owner-manager company I know of saw turnover drop by two-thirds during the pandemic, but profits have doubled,” he says. “That’s because they’ve had the time to dive into what actually makes their profits.”

He suggests many businesses will benefit by focusing on cash flow, working with debtors to ensure money is flowing into the company. He also warns against failing to pay creditors on time: “If you’re trying to make the books balance, squeezing creditors is not the answer. I also think HMRC has been quite good about giving people the ability to make deferred payments – if you’re going to have a problem with them just speak to somebody there about it.”

Accountants and business advisers may be able to help businesses make better use of technology to help them plan. “One of our best teams last year was our modelling team, working with larger, more sophisticated clients and coming up with more complex models,” says Petts. 

It may also be possible to learn useful lessons from other businesses or organisations. “Looking at other organisations that might not be direct competitors is absolutely the right thing to do,” says Grove. “There are things they may be doing that might not be relevant for us today, but they could be relevant next year or the year after.”

Some businesses might even be able to learn from the way that charity and voluntary sector organisations – which can face hugely difficult planning challenges at the best of times – have coped during the past few years. “Incomes are dropping and costs and demands for charities’ services are rising,” says Rui Domingues, director of finance and operations at the Charity Finance Group, a charity dedicated to helping other charities develop financial management knowledge and skills. “There are lots of charities out there that are very concerned about their finances. Scenarios used for planning are all over the place, so you sometimes need very short timelines for working out how to obtain the income you need to deliver services. So there’s been a return to cash forecasting and analysis in the short term.” 

He also highlights a characteristic of the third sector that helps charities become more resilient and could be of use to some businesses: a long-term view of the bottom line. “For charities, some years we will have a surplus and there will be years when that is held in reserve, in readiness for years when you need to invest,” he explains. “We’ve adopted a risk-based approach: you look at the volatility of income resources, analyse what you would need in place to keep your commitments going and select a suitable level of reserves. Our concern at the moment is that we’ve got a continual erosion of reserves across the charity sector, which in the long term is not sustainable.”

But Chand Chudasama, a partner in the strategic corporate finance team at Price Bailey, thinks some businesses might learn from the financial sector. “The most resilient businesses are the banks,” he says. “They’re always highly exposed to change and volatility, but when necessary they’ve moved quickly to cut jobs, to restructure, to invest in technology.” By contrast, he suggests, too many other businesses often fail to grasp opportunities, optimise margins, or recruit when necessary. He sees opportunities ahead in 2023 for businesses that have been able to secure their financial foundations and have invested in talent, particularly in management. 

Williams also thinks there are some reasons to be optimistic – but stresses the need for businesses to keep preparing for further future disruption. “The war in Ukraine could get worse,” he warns. “Energy may continue to be a major issue. I wouldn’t say we were out of the woods yet. But having got through this, you’d like to think that the nimble businesses will survive.”

Useful links

Ukraine crisis: central resource hub

Resources, news and features on the impact of the Ukraine crisis on accountancy, business and the wider economy.

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