The COVID-19 virus has caused untold disruption across every aspect of our lives. As individuals we are each having to fundamentally adapt our day-to-day behaviours to keep each other safe and try to help flatten the infection curve.

From a business perspective the devastating impact has been all too obvious. One of the consequences of the pandemic for businesses is that any short to medium term financial projections are now virtually redundant. Many businesses of all sizes, operating across a myriad of sectors, have seen their turnover either completely fall off a cliff, or shrink dramatically, with a resulting pressure on profits and most critically, cash.

So how should management teams respond? 
There might be a temptation for some to take the view that due to the sheer unprecedented nature of the current situation, coupled with the fact that there are currently no reliable estimates of how long the crisis will last, there is no point in trying to prepare financial projections. We believe that this would be ill advised.

Business benefits of preparing realistic financial projections
Preparing and diligently monitoring a set of realistic financial projections during the current period can provide the following benefits:

  1. It enables business owners to understand how bad things really are in terms of revenue drop-off and more pertinently, the extent of any resulting funding gap / cash deficit. This should then enable business owners to have productive discussions with their various financial stakeholders around what support can be provided to their business. Without understanding the trajectory of a businesses’ forecast cashflow, for example, it is difficult for a financial stakeholder, such as a lender, to provide appropriate support;
  2. It provides useful visibility of the extent to which “self-help” remedies exist (or not) within the business to limit losses and support efforts to preserve cash; and
  3. They can form a key part of a business’ application to the Coronavirus Business Interruption Loan Scheme (CBILS): a new set of financial projections anchored to the preceding 2- 3 years of financial statements that demonstrate how COVID-19 has caused a deterioration in an otherwise sound business will form part of any application.

Whilst existing financial projections or business plans have been seemingly rendered obsolete by COVID-19 at least in the short to medium term, we strongly advise businesses to prioritise the preparation of a new set of integrated financial projections (profit & loss, balance sheet and cashflow) as a key tool in helping them navigate the current crisis.