The unprecedented shutdown of the economy has caught many of us unprepared. Addressing cash flow and risk management have been the most urgent priorities. Planning for the post-crisis recovery might not seem so important just yet. But we must not be unprepared for that, too.
The term resilience became a buzzword in recent years. Digital technologies enable new business models that are disrupting many sectors. Established businesses need to build resilience to be prepared for the unexpected.
In practical terms, a resilient business is one that’s viable, alert, prepared, sharp and swift.
Businesses that fail are often described as having had pre-existing conditions. Failure tends to progress gradually, then suddenly. A long-term issue might weaken the business over time, until a final straw is added to its burden and it fails.
To be commercial, businesses must constantly re-allocate resources to where the returns or prospects are best. Enough liquidity and reserves must be maintained to withstand lean times. Daring, greed and sentimentality must be counter balanced by shrewd stewardship.
Business leaders must be alert to the risks that the business faces. Since 2017, the Financial Reporting Council (FRC) has required that businesses publish a strategic report that includes a section about risk management and measurements of risk. The Guidance on the Strategic Report outlines required content. This has put management accounting in the public domain. It obliges directors to provide transparency about the business’ position, prospects strategic direction and the risks it faces.
This transparency enables better-informed governance by stakeholders. It also focuses the directors’ attention on matters they should address.
This goes beyond risk monitoring and mitigation to include scenario planning and having ‘playbooks’ or a plan B. Controls tend to be relaxed and costs tend to escalate in good times. A crisis provides the burning platform needed to bring back the discipline of cost management and to implement overdue strategic changes.
Intangibles such as customers’ confidence, supplier relationships, and staff engagement take many years to build. These are often the drivers of success in a business. If these are not maintained throughout the shut-down period, the business will not be ready bounce back.
There have been few good news stories of late, but there have been some impressive examples of innovation in the public interest. There’s alcohol in gin, so gin distillers were well-placed to make hand sanitizers. Likewise, if vacuum cleaners draw in air they must also expel it too; Dyson could make ventilators.
Being able to see how core competencies could have other applications is an example of being sharp or quick-witted. Resilience requires this ability to develop new ideas, tactics or even strategies quickly.
Coming up with new ideas is a challenge, but what most businesses find more difficult is having the capacity and competence to be able to implement new ideas swiftly.
Major high street retailers have been adapting to tackle online competition for many years. Yet, within a few weeks, many small and mid-sized businesses have already shifted their sales channels online.
With your pragmatic, commercial approach to financial management, you are well positioned to translate a buzzword like resilience into a reality, guiding the business through cost management triage, scenario planning and onto sustainable recovery.