How FP&A Can Turn Uncertainty into Opportunity

Amid chaos and uncertainty, a typical unprepared business owner’s mind can become overcome with fear. Any risk is seen as the risk; as these risks accumulate they threaten to become overwhelming. At this point, a fresh attitude is required in order to improve the situation – or at least so that it seems less apocalyptic.

In the wake of uncertainty, financial planning and analysis (FP&A) is the best professional function to convert pessimism to optimism. For an FP&A professional being an optimist is rather more than simply an uninformed pessimist. The analyst and planner should always be informed – in most cases more than anyone else in the organisation.

Critical Skills

The biggest difference is made by adopting a positive outlook on events, so that any uncertainty opens a windows of opportunity rather than slams it shut. Well-prepared finance professionals should cultivate the following FP&A skills in addressing the concerns of business owners:

Openness to change. Any change, if it has already happened, is treated simply as a fact of life. This enables you to accept it and create a viable strategy around it, once it gets on your ‘business-as-usual’ list.

Drive for optimal solutions. A high-skilled analyst does not stop after one reason is found, or one answer is prepared. Jumping to a conclusion based on a single premise is clearly premature. Relentlessly looking for – and eventually finding – the deeply-hidden roots really makes a difference.

Monitoring for changes in key figures. Even the slightest clue is a good sign of change and should be noted and stored for further analysis. Once there are multiple changes in a single key figure, it may be late too act upon them. A good forecaster should project when there is still enough time to act before the critical change occurs, which is typically the culmination of multiple small changes.

Adequate reaction to smaller changes. Following on from the previous point, the key word here is ‘adequate’. Not too weak or too strong – well-balanced, in other words. This ability to respond as appropriate comes with experience and a degree of luck, sometimes called ‘intuition’.

Creative insights should come out easily in the form of relevantly posed questions:

  • Which challenges are most critical?
  • Which options (to act upon those challenges) are still open and actionable?
  • What is the best order of actions?
  • Who is there to help out from managers, employees, outsourcers, friends and family?
  • What is the next decision point?

The action plans provided by their FP&A professionals help provide business owners with much-needed support in times of instability. The most important thing here is to ensure the right way to conserve capital and, where possible, continue growth as soon as possible after political or social meltdown.

Helpful Models

A business owner is helped by a well-prepared financial consultant – whether internal or external – in the following ways:

  • Brainstorming scenarios for the near-term ‘futures’ (three to 12 weeks ahead) covering the most critical business functions, processes and decisions.
  • Ranges of values for key business figures: This includes the volatility of input prices, revenue variability, foreign exchange (FX) rate fluctuations, oil and gas prices, rates for main transportation routes, rent rates – especially if any of these are pegged to hard currencies.
  • Action plans for the three main scenarios: probable, ‘best case’ and ‘worst case’.
  • Concise reporting models that cover future business positions in cash flow, assets, liabilities, capital, and profit and loss (P&L).

The best models are prepared based on a list of key drivers that may be dynamically updated. This allows for the model to be re-forecast and adjusted on a weekly, or even daily, basis. Sometimes – as is currently the case with Ukraine and Russia – it is critical to hold daily management meetings and schedule them at the right time of the business day.

When well-timed, these meetings may still be actionable. Take, for example, decisions involving foreign currencies. Based on a management decision taken by 9:30 a.m., you could still arrange buying or selling right currencies at acceptable FX rates.

Or, where the company’s processing cycle is very short, a decision taken early in day to transfer prepayment amounts to a supplier could make a real difference. You could then receive the raw materials, process them and ship the finished goods later that same day – meaning the cash cycle is exactly one business day. Sometimes the process takes only eight to 10 hours, because the whole business operates on prepayments. So you are not only buying, but also selling on prepaid cash.

For such high-speed businesses, correspondingly high-speed banking and well-prepared trade finance and cash pooling solutions are critical. Banks should monitor the business environment more actively and propose viable options aggressively for such fast-turnover industries. In fact, they could only require fast-growing and fast-flowing money just in time and ‘at hand’, although this is a topic for a further discussion on the treasury side.

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