{"id":4001,"date":"2020-11-12T10:31:20","date_gmt":"2020-11-12T15:31:20","guid":{"rendered":"https:\/\/lions.financial\/?p=4001"},"modified":"2022-11-29T16:37:10","modified_gmt":"2022-11-29T21:37:10","slug":"business-planning-in-covid-19-era","status":"publish","type":"post","link":"https:\/\/lions.financial\/hi\/business-planning-in-covid-19-era\/","title":{"rendered":"Business Planning In COVID-19 era"},"content":{"rendered":"

Q:\u00a0 What\u2019s a must-have ability for a business in this COVID-19 era?<\/em><\/strong><\/p>\n

A:\u00a0 Adaptability. Proactive<\/u><\/strong> adaptability. Without it, a business remains poorly prepared. Struggling with each new surge of COVID-19. Result? Losses caused by supply-chain breakdowns, beside demand slowdowns. With it, a business can reach two key goals. One: Slash 40% off time-to-market with the right<\/u> products and services. Two: Cut costs and expenses by 20 – 30%.<\/p>\n

Q:\u00a0 How are new surges of COVID-19 affecting businesses that survived the first wave?<\/em><\/strong><\/p>\n

A:\u00a0 New surges of COVID-19 delay full and lasting recovery. If a business was at-risk before, it\u2019s likely at higher risk now. This is made worse by the fact that recovery happens at different rates. Even in essential industry sectors. Consider healthcare. The margins of non-profit hospitals remain weak. Meanwhile, the margins of for-profit hospitals have improved. Old pharma is still being transformed. Meanwhile, new biotech is driving transformation. At any<\/u> rate of recovery in any<\/u> industry sector, proactive<\/u><\/strong> adaptability is vital.<\/p>\n

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Q:\u00a0 How is Lions Financial now helping businesses with their planning needs?<\/em><\/strong><\/p>\n

A:\u00a0 We now offer full or<\/u> fractionalized business planning services. We help business clients plan for the worst-case. Also<\/u>, for the best-case. And<\/u> anything in-between. We use 4 business planning tools to help. Scenario Analysis<\/em>, to help plan for 4 levels of business outcomes. Zero-Based Budgeting<\/em>, to help plan for 4 levels of business efficiencies. Expected Monetary Value<\/em>, to help plan for 4 levels of business risk. And Modern Financial Decision-making<\/em>, to help plan for 4 levels of capital use.<\/p>\n

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Q:\u00a0 What is Scenario Analysis? Why should a business use it?<\/em><\/strong><\/p>\n

A:\u00a0 It maps future outcomes for a business. It\u2019s used to estimate changes in cash flow and net profit. This helps a business prepare, in advance, to manage various outcomes. So, business decision-making becomes less daunting and stressful. We help inform smarter business decision-making by using financial models, with relevant industry benchmarks.<\/p>\n

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Q:\u00a0 Why would a business flush with new investments, like a \u201chot\u201d biotech, use this?<\/em><\/strong><\/p>\n

A: Even a \u201chot\u201d biotech needs Scenario Analysis. To better tweak its business model. It\u2019s capital burn rate. It\u2019s R&D and HR decisions. Any<\/u> \u201chot\u201d tech business favored by investors today (and therefore more likely to be bypassed by competitors because COVID-19 has sped up the race for tech breakthroughs and application innovations) can quickly wind up unwanted tomorrow. Scenario Analysis helps any such business steer with more intelligence.<\/p>\n

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Q:\u00a0 What\u2019s Zero-Based Budgeting? How different is it than traditional budgeting?<\/em><\/strong><\/p>\n

A:\u00a0 This process is a \u201cparticipative budgeting\u201d approach. It\u2019s undertaken by every<\/u> department and division of a business. One that commits to a shared business-wide \u201csingle source of truth.\u201d \u00a0It restarts at zero for each budget period. Info is examined at a granular line-item by line-item level. Then each budget is rebuilt. And synchronized with others. The priority is business necessity and efficiencies. Not mere markups of historical budgets. Resources needed must be justified, on an ongoing basis. Modern<\/u> digital tools make it easier than ever to use. And cloud-based real-time dashboards provide more timely info. Crucial during this COVID-19 era.<\/p>\n

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Q:\u00a0 What\u2019s required when a business adopts Zero-Based Budgeting?<\/em><\/strong><\/p>\n

A:<\/strong>\u00a0 Step #1: Classify financial info in 6 categories. A common surprise: line-items (revenues, costs, expenses) in traditional financial statements were often misclassified or incorrect. By about 15 to 20 percent! Step #2: Correct all such info. Then pinpoint specific areas for process and operational efficiencies. During this crucial step: revenue-generation and cost-center business units collaborate. They set interdependent targets, with cooperative performance benchmarks. And they reallocate and synchronize individual budgets. Step #3: Use this info to rebuild new budgets from zero. Step #4: Measure actual outcomes. And ensure zero-based budgeting is embedded as the new standard business-wide.<\/p>\n

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Q:\u00a0 Can you illustrate how Zero-Based Budgeting works for a business?<\/em><\/strong><\/p>\n

A:\u00a0 Consider an anonymized biotech startup, with an offshore R&D facility.<\/p>\n

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A:\u00a0 Step #1, we\u2019re looking at a first quarter of actual results and projections. Opportunities to improve efficiency were flagged in all 6 financial categories. #1: Close the gap between budget forecast and actual revenue. Under<\/u>-forecasting or over<\/u>-forecasting revenue are common bad habits. This creates inefficiencies. And lost opportunities because of under<\/u>-resourcing, or waste because of over<\/u>-resourcing. Improving efficiencies became more urgent. Investors were increasingly concerned about COVID-19 disruptions delaying a liquidity event. So, a key goal was to improve revenue forecasts to within +\/-2% of actual. This is in-line with best-practices at a publicly-held peer who uses a modern<\/u> digital Customer Relationship Management tool. The negative impact of under<\/u>-forecasting in this case prompted a re-balancing of Variable Costs, Fixed Costs, Capital Costs, Non-Cash Expenses, and Non-Operating Expenses.<\/p>\n

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A:\u00a0 A pivot plan, starting in the second quarter, began by focusing on right<\/u>-forecasting and right<\/u>-resourcing double-digit growth, with re-balanced<\/u> costs \u2013 and a positive<\/u> bottom-line.<\/p>\n

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A:\u00a0 The pivot plan, starting in the second quarter, was fine-tuned. The goal: Become viable enough to compete<\/u> for another round of needed investment capital in next 18-24 months.<\/p>\n

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Q:\u00a0 What\u2019s Expected Monetary Value? How is it used in business planning?<\/em><\/strong><\/p>\n

A:\u00a0 It\u2019s about risk management. Calculated by multiplying the probability of an event occurring by the monetary impact of such an event. Risk is a natural part of business. And it\u2019s even more important now, given the prolonged impact of COVID-19. It\u2019s used mainly to guide business managers about how to plan for correct amounts required for contingencies.<\/p>\n

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Q:\u00a0 What\u2019s Modern Financial Decision-making? What\u2019s different about it?<\/em><\/strong><\/p>\n

A:\u00a0 It about the same three traditional financial considerations of any business. 1: Investment<\/u> decisions. 2: Financing<\/u> decisions. 3: Dividend<\/u> decisions. Difference here is that the finance function of a business goes beyond a traditional role. Beyond just procuring funds, for the most suitable terms. Here, corporate finance is more hands-on about effective<\/strong> use of funds. Needed because COVID-19 has made it harsher for sub-par use of funds.<\/p>\n

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Q:\u00a0 What Investment decisions does a business make? Has COVID-19 compelled changes?<\/em><\/strong><\/p>\n

A:\u00a0 There are two kinds of investments a business makes in its assets. 1: Long<\/u>-term investments, aka \u201cCapital Budget\u201d items. 2: Short<\/u>-term investments, aka \u201cWorking Capital\u201d items. The lingering impact of COVID-19 is making every business focus more on Short-term investments or \u201cWorking Capital.\u201d<\/p>\n

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Q:\u00a0 What Financing decisions does a business make? Has COVID-19 forced changes?<\/em><\/strong><\/p>\n

A:\u00a0 This is about raising finance. Here too there are two kinds. 1: Debt finance, secured via corporate bonds issued, or loans taken. 2: Equity finance, gained from shares sold to the public (if it\u2019s already a publicly listed company), or convertible shares offered to private investors (if it\u2019s a startup or more mature privately held business). A debt-to-equity ratio of 1.5 or below is typical. Going over 2 is more typical for a capital-intensive business. Here too, the gnawing impact of COVID-19 is forcing most to rely on debt finance.<\/p>\n

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Q:\u00a0 What Dividend decisions does a business make? And what are typical considerations?<\/em><\/strong><\/p>\n

A:\u00a0 These is about the distribution of share of profits (after tax) to shareholders, as well as portion retained to further the growth of a business. There are about a dozen considerations here. See chart. The major one is earnings. And how much, ranging from 0% to 75%, a business is willing or able to give its shareholders.<\/p>\n

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\"\"<\/a><\/p>","protected":false},"excerpt":{"rendered":"

Q:\u00a0 What\u2019s a must-have ability for a business in this COVID-19 era? A:\u00a0 Adaptability. Proactive adaptability. Without it, a business remains poorly prepared. Struggling with 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