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May 7, 2020

The need for quick and correct decisions during a crisis

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9 essential points to make decisions and overcome the crisis from the Profid's accounting experts

As a typical example of a "black swan," COVID-19 was an unpredictable event. In times of such crisis, a small proportion of businesses benefit from a favorable change in customer demand, some can operate without major obstacles and a huge group is either significantly disadvantaged or stopped completely.

The need for decision making

What can an entrepreneur do, sitting at home thinking about his unoccupied employees and an empty production hall? To what extent does he have his business under control when government restrictions are escalating? And how to make an informed decision at that point? The crisis can be a catalyst for decisions that you have been considering for a while. At the same time, it is a challenge to test your emotional, financial and informational readiness. As the management does not have control over external conditions, internal information become crucial element of a swift decision-making.

Garbage in garbage out

At any given time, accounting has the potential to answer your questions and offer an overview of profitability, and financial capacity. Financial statements provide a basic overview of the financial health of the company, but their timeliness at the moment when the owner is forced to make decisions from day to day, is definitely not up to date. If accounting is seen only as a necessary hassle that is formed retrospectively, huge potential is lost. Also, if your financial records are kept in a structure primarily for tax compliance, you will never get the type of financial output you need to move your company forward.

Quality and timely accounting allows you to compare planned turnover and reality at any time (and especially in crisis), predict, determine profitability, and take measures that stabilize and increase the efficiency even with reduced inputs.

Interpretation and action

Once you gather the quality inputs, a qualified accountant can give you a very good view on the financial performance, interpret the financial outputs and model the possible effects of particular decisions that you are considering to push the company into a recovery and growth phase. There is usually second to none person in a privately owned business other than the owner himself.

Financial management in crisis

  1. Have well-kept ongoing information.
  2. Have financial reserves set aside.
  3. Actively manage cash flow and liquidity:
    Monitor the maturity of liabilities;
    Do not rely on debt collection and agreed sales.
  4. Revise the financial plan, define several scenarios and sensitivity analysis of critical factors based on current data.
  5. Identify major 20/80 sales ratio and review your business strategy.
  6. Re-evaluate the planned investments and find the ideal price / performance.
  7. Optimize inventory.
  8. Identify risks in the supply chain.
  9. Evaluate the need for external CFO.
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