Economic upheaval is unavoidable for small and medium-sized enterprises globally, thanks to the pandemic. Even though a company's leadership is aware of its business strategy's risks and possible difficulties, unexpected crises can significantly impact its bottom line. This makes it critical for enterprises affected by the COVID-19 outbreak to seek financial aid.
But where do SMBs make that start? First and foremost, business leaders need to address the effects on profitability, cash flow, and maintaining functions under the "new normal." If left unnoticed, these aspects can soon pile on, making it hard for your business to make ends meet. So, to make things easy here's a quick read on how SMBs are coping with the COVID-crises.
Role of accounting and Finance departments in the face of a crisis
As the COVID-19 crisis unfolds, Finance professionals play a critical role in assisting their companies with a financial management guide. A financial management guide is a response to member input. It is intended to assist members in considering the steps they might have to take if their organizations continue to encounter financial stress.
In times of uncertainty, companies need team members to be resourceful, adaptive, and inventive. This is a critical time for accounting professionals to demonstrate their leadership in defending the bottom line when financial resources are squeezed. Here are a few ways accounting and Finance professionals have helped businesses sustain and grow since COVID-19 started changing the world in unimaginable ways.
1. Prioritized, supportive, and well-communicated responses from Finance
A holistic approach and careful prioritization are needed to address financial difficulties. Complicating an already stressful situation by adding more duties and responsibilities isn't a good idea. Thus, to help business managers and employees cope with the increased workload, financial management measures and process improvements should be tailored to their needs.
Additionally, clear, consistent empathetic communication and clarifications around why specific steps are undertaken work as soft buy-ins from teams to get the ball rolling.
2. Check government support before executing plans
It is not usually the first choice, but the Federal Paycheck Protection Program (PPP) has been the most common approach during COVID-19. Small and medium-sized businesses (SMBs) are increasingly relying on loans to help them weather the economic storms that are sweeping the global landscape.
In addition to emergency reserves, the PPP provides a safety net of cash for businesses. It's important to note that these loans can be forgiven if utilized to pay back existing debt or cover living expenses like rent or mortgage interest. Additionally, the program has been altered post-COVID-19 to allow more discretion around how and when enterprises might utilize these funds.
3. Member support and ICAEW COVID-19 hub
Chartered Accountants play an important role in minimizing the financial suffering to businesses and the general public. Daily, ICAEW updates its website and seems to have a dedicated COVID-19 hub with the latest direction and assistance on utilizing government business support, practical insight into financial management and operational issues, and regulatory requirements, including tax and tax business filing.
4. Getting support from a chartered Accountant
Clients resorted to their CPAs (Chartered Public Accountants) for assistance as the COVID-19 outbreak altered the corporate landscape. As a result, CPAs who provide Client Advisory Services (CAS) for troubled customers were well-equipped to stabilize and reposition. External services, including accounting, outsourced CFO, and controller services, including business advising services, are all included under CAS's umbrella.
Since CPAs that use CAS are continually updated on their customer's financial situation, they're better equipped to provide business advice. In addition, CPAs working with customers in impacted industries have utilized CAS to help their clients envision what's possible.
5. Financial planning around the current reality
Small companies may use this opportunity to plan for the future and safeguard themselves when revenue sees growth again. Moreover, many small-and medium-sized business finance professionals plan to invest in technological solutions like fin-tech app development that enables increased efficiency and security for an even more remote & diverse workforce. Thus it’s safe to say this would become the "new normal" in the coming years.
Financial management checklist for 2022
Here's a handy list of things you should keep a close eye on, especially in critical situations. These will help you better manage financial resources and analyze your business's financial health at any given time.
1. Prioritization and communication
A simple strategy to keep your stakeholders happy and secure is regularly staying in touch with them. They must be aware of your intentions, as well as what they can and cannot expect from you. Additionally, if you don't connect with your stakeholders, you might damage your organization's capacity to stay updated with new legislation and policies and customer needs and challenges.
2. Cash flow and liquidity
No matter how much money an organization generates, it will still need to manage its cash flow to be successful. This is because activities in the business operations, investments, and financing are all linked to a company's cash flow in one way or another.
If you have a professional accountant, they can help you with this. Additionally, using an expense management software helps you understand cash flow predictions with real-time spend visibility and control.
3. Working capital and short-term finance
If you're in a hard-hit location, credit quality may decline fast. Current Expected Credit Losses (CECL) models may be overwhelmed, necessitating more resources to estimate the effect of shifting market circumstances. In the long run, this might have an impact on stress testing.
Businesses can use a thorough portfolio evaluation to determine how this circumstance may affect credit quality. Additionally, if you've defined qualitative reserves, check to see if they're still relevant and that your essential assumptions (or those of vendors) are still true.
Lastly, considering how rapidly things are changing, you may want to adjust your economic models, including the weighting given to certain situations.
4. Medium and long-term finance
The times are uncertain - we do not know how long COVID-19 will keep the world distancing socially and working remotely. Therefore, businesses need to make smarter decisions. For instance, companies affected should consider medium or long-term finances with low-interest rates to sustain the business. Besides, keep the shareholders in the loop with all your financing decisions.
5. Financial obligations
It would be best if you got all your financial obligations listed down to have proper knowledge about them. Then, during the pandemic, try to minimize obligations and make your company financially stronger for an uncertain future.
6. Risk management
Effective threat management is essential for a company to remain viable. Business continuity plans can assist you in managing the pandemic's effects and satisfy your legal requirements to safeguard the safety of your employees if one occurs.
Your company's risk management approach and impact analysis will be detailed in your strategic planning process. When an incident occurs, this document will outline how your company intends to handle it and include rules and procedures for personnel and communication in the event of a crisis.
7. Strategizing, planning, and budgeting
In the wake of the pandemic, corporations need a clear picture of where they stand. As a result, a COVID-19 financial planning team of cross-functional specialists should be assembled. The upper management can construct a robust plan with the financial-planning team and cross-functional specialists, presenting a comprehensive narrative about the past, present, future market, and financial trends.
Conclusion
Even though the crisis continues to rage, firms can continue to operate and scale by making strategic plans, cutting expenses, adjusting revenue safeguards, leveraging loans, and making long-term investments.
