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Why its important for CFO's to amend their scenario plans

Updated: Aug 9

CFO‘s have traditionally relied on scenario planning to anticipate revenue and cash flows, by charting a path forward based on potential changes in the business environment.


Thanks to COVID-19 it has become almost impossible to predict what future sales figures look like, resulting in budgets being thrown out of the window and investment timelines extended expediently. Which has rendered forward-looking guidance almost impossible to give.


Recently, businesses have found on an ever-increasing basis that they have had to discard their previous plans, in favour of a more realistic outlook and admit they don't know what’s next. Often relying on earlier historical economic collapses, like 2008, as a blueprint.


In the past, when crises such as economic recessions have happened, CFO’s have only had to scenario plan against one or two sectors, like energy or credit markets.


However, this time around, CFO’s have found that every part of their business is strained. Leading to unpredictability, especially about when the pandemic will recede, and what will follow.


Within the last twelve months, most CFO’s have taken back, or heavily revised, their early predictions for the coming year. Recent research has found 62% of companies have withdrawn or revised earnings guidance because of the pandemic.


It has become increasingly important that companies think about the drivers of their business, and then allow for some variances, in hopes of getting some forecasting abilities. This has meant that studying daily trends and being super transparent has become the norm, and analysis of real-time data has allowed for models to give greater forecasting reliability.


Each company has different drivers, and many companies primarily look at marketing and sales teams' efforts. However, it has become more important to look at a much broader suite of KPIs, including things such as how many unique visitors the company’s website has attracted each day and where the website visitors have come from i.e. are they referrals from things such as social media or are they direct traffic.


Most companies began the year with a pretty aggressive sales plan, however these largely fell through by March 2021, when it was apparent that COVID-19 wasn’t going anywhere soon.


This meant that most businesses had to go back and evaluate their drivers and try and understand why sales cycle were taking longer than expected.


Around 75% of companies found that they hadn’t lost any deals, but when they went back and checked their assumptions, it was apparent that instead of a three-month selling cycle, it was now more like six months.


CFO‘s need to try and be as transparent with both investors and employees as they can, and to game theory all the different scenarios that could take place.


However, it’s obviously hard to predict the future. Which is why our Digital CFO’s regularly get together with their peers and discuss the impact that COVID-19 has had on other businesses, and most importantly work out how they can support the businesses they are working with.


If you are finding that your businesses is struggling to plan for its future, book a discovery call today and one of our team will be more than happy to discuss how one of our Digital CFO’s can help your business.

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