Financial Management During Economic Uncertainty Heading Into The New Year
by Ryan Walter
Managing Director
ProCFO Partners
Economic uncertainty is a reality that every company must face from time to time. Inflation, interest rate hikes, and bank failures can cause economic downturns and lead to tightening of the credit market. Therefore, companies must proactively protect their current situation and secure their future. Today let’s discuss strategies for companies to protect themselves during uncertain economic times.
Update Sales Projections
Sales projections are a starting point for companies to assess their financial situation. Updating these projections regularly, especially during economic uncertainty, is essential to making informed decisions. You can start by looking at your current quarter, the next quarter, and 12 to 18 months ahead. It’s also a great idea to reach out to customers to gauge their outlook on the future and adjust sales projections accordingly.
Design Industry-Specific Financial Reports
The financial reports that companies rely on will vary by industry. In manufacturing, purchase orders from customers are more important than web traffic. We suggest you dive deeper into your industry-specific reports, such as buyers’ expectations for the coming quarters, consumer optimism, and producer price index, to understand what is happening.
Create Financial Projections
Sales projections drive the rest of the business, making financial projections an essential next step. When possible, financial projections should look ahead two to three years to give companies a directional idea of their financial situation based on sales projections in the coming quarters. The projections should include income statements, balance sheets, and cash balances to give you a good idea of what to do next, whether you need to take specific actions or raise capital.
Stress Test Sales Projections
Stress testing sales projections is critical during uncertain economic times. Start by stress-testing your sales projections to see what happens if sales drop 5%, 10%, or 15%. Understanding the impact of these scenarios on gross margins can help you plan for the future.
Maintain Financial Projections
Maintaining financial projections continuously is necessary to keep looking forward and be proactive. Historical financial information should be as accurate as possible, and financial projections should be updated regularly. Reviewing gross margins on a historical basis allows you to stress test projections in the future and address potential scenarios.
Meet with Lenders Regularly
Regularly meeting with lenders and keeping them informed is crucial, especially during economic uncertainty. Lenders never like to be surprised, so it’s essential to be proactive and inform them about your financial situation. Building covenant calculations into projections helps you stay in compliance with your bank loan. If your company is expecting a downturn, inform your banker ahead of time, allowing them to work with the company to develop solutions.
Conclusion
Economic uncertainty can be challenging for companies to navigate. However, taking proactive steps can help you protect your current situation and secure your future. Updating sales projections, creating and understanding industry-specific financial reports, maintaining financial projections, stress testing projections, and meeting with lenders regularly are all essential strategies for companies to consider. In the midst of all that, make sure your team is equipped with the right players.
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Ryan Walter
Managing Director
ProCFO Partners
ryan.walter@procfopartners.com
www.procfopartners.com
Ryan Walter’s expertise is in strategic execution, cross-functional team leadership, business transformation, organizational change management, operational & process improvement, scaling, and enterprise technology/data management.
ProCFO Partners are expert financial officers, experienced across industries, verticals, specializations and situations.