As the global economy weathers yet another wave of disruption – this time in the form of rapidly escalating tariffs – businesses find themselves navigating uncharted waters.

Supply chains are being redrawn, input costs are rising unpredictably and the rules of global trade are shifting in real time. For finance professionals, the pressure is on to deliver clarity in the fog of uncertainty, offering strategic insight and financial agility when both are in short supply.

ICAEW offers practical tips to help finance leaders plan effectively amid the instability, drawing on recent case studies, expert perspectives and emerging best practice.

1. Know your cash flow

In uncertain times, maintaining a clear view of cash flow is essential. Accountants should help businesses develop rolling 13-week forecasts based on actual inflows and outflows. These forecasts help identify shortfalls and ensure sufficient liquidity to meet obligations, especially in volatile markets.

Review and optimise accounts receivable processes: accelerate payments, chase overdue invoices and consider requesting upfront payments where possible. Encourage clients to manage inventory efficiently by selling off aged stock to free up cash.

Monitoring key performance indicators (KPIs) such as operating cash flow, working capital trends and debt ageing is critical. These KPIs provide visibility and can help businesses react quickly to shifting market conditions.

• More support on cash flow and forecasting

2. Scenario planning

Scenario planning is a crucial tool to help businesses prepare for disruption in their operating environment, such as interruptions to supply chains and unanticipated costs. Businesses can use scenarios to explore a variety of disruptions, including geopolitical, economic and operational challenges. It’s not about predicting the future, but instead about helping executives who make strategic decisions to be more able to respond to crises.

SWOT (strengths, weakness, opportunities, threats) analysis is one familiar tool that can help to identify internal and external risks. Meanwhile, strategic scenario planning looks out over a median to long-term horizon and uses trend information and evidence from today on how the world may change in the future. 

Strategic scenario planning helps managers consider appropriate responses ahead of time and help identify potential ‘no-regret actions’ – actions that can be taken by the organisation that will be beneficial regardless of the future that comes to pass. 

Scenario planning should be based on reliable data, including management accounts and economic forecasts. They must also be plausible – although not necessarily probable – relevant to the business decision or issue at hand, and use storytelling to make scenarios immersive and engaging for the audience. Regular reviews and adjustments to forecasts help ensure they remain accurate as the economic situation evolves.

• Scenario planning can help to navigate uncertainty
• A scenario planning guide for boards

3. Reverse stress testing

Reverse stress testing (RST) is a process that helps to identify potential failure points in a business and decide upon actions to prevent such failures. Unlike conventional stress tests, RST starts with the identification of a pre-defined outcome – the point at which the entity’s business plan becomes unviable – and considers combinations of adverse circumstances that could cause the failure of the business. This could include those triggered by global trade disputes (supply chain disruption) or sudden tariff changes (change of access to markets).

After defining the failure point to be tested, such as the entity running out of cash, the next step is to identify a range of scenarios that could bring about this outcome and their severity. Those completing the RST then simulate the impact of these disruptions and quantify the financial shortfall that would cause the failure. Then an assessment of the likelihood of these events takes place before the data is used to create strategies to mitigate these risks. This could include diversifying supply chains or restructuring operations to reduce reliance on vulnerable markets.

RST helps businesses be proactive by ensuring they are prepared for worst-case scenarios and can quickly pivot if necessary.

• What is reverse stress testing?
• How to do reverse stress testing
• How entities and auditors use RST

4. Contingency plans

Developing and testing contingency plans is critical for maintaining operations during disruptions, whether from political instability, global tariffs, or unforeseen crises.

Set up a cross-functional crisis management team that can respond to issues triggered by tariffs, such as sudden increases in material costs. This team should regularly review crisis management policies to ensure they account for new potential risks, such as changes in government regulations.

Additionally, ensure boards have a contingency plan in place for board continuity and adjust schedules to allow for rapid decision-making during emergencies.

• More support on business continuity and disaster recovery

5. Learning from other sectors

During economic uncertainty, learning from other sectors can provide valuable insights into managing risks and seizing opportunities. For example, the financial sector quickly adapts to crises by restructuring and investing in technology, while the charity sector has relied on short-term cash forecasting to maintain resilience.

Look beyond your industry for innovative solutions. For example, businesses can implement short-term cash forecasting models, like those used in the charity sector, to enhance liquidity management. Additionally, consider the agility of smaller businesses that often outperform larger ones during times of instability as they can pivot faster.

Businesses should also explore how companies in sectors facing similar trade disruptions are adjusting their strategies. This could lead to innovative approaches for managing tariffs, such as renegotiating supplier contracts or exploring new international markets that are less affected by tariffs.

• Steve Hare, CEO of Sage, on leading through a crisis