February 2021 in Business Advisory

Q&A: Financial Forecasting & Analysis in a COVID-19 World

As business leaders continue to grapple with the effects of the COVID-19 pandemic and look for opportunities to boost their liquidity, many organizations are turning to the numbers to give them insight into what the future of their business might look like.

We recently spoke with Gregg Hamilton-Piercy, Lead Partner of MFA’s Financial Planning & Analysis Practice, to learn more about how businesses are relying on financial modeling and scenario building to guide them through and beyond the COVID-19 crisis.

Q: What’s been your impression of how business owners have reacted to the pandemic?

Gregg Hamilton-Piercy (GHP): Well it’s probably not a surprise that a lot of businesses were caught flat-footed in the beginning. I think a good number of CEOs and CFOs found out quite quickly that they didn’t actually know their numbers as well as they thought they did — and more importantly, that they may not have been well prepared to weather a storm like this.

Q: For owners and finance execs who have found themselves in that position, what are some of the first steps they can take to begin effectively navigating these new waters?

GHP: The big question they all want the answer to is ‘when is the money going to run out?’ So, they are probably either fine-tuning or building a forecast for the first time. Unfortunately, it’s not as easy a process as it sounds. Not just because the assumptions are fundamentally hard to make, but also because of the time it takes to think methodically about what those numbers really mean and how to use them to inform decision-making.

Q: In terms of trying to forecast costs, what are some of the variables that are coming into play that can impact available cash flow and working capital?

GHP: Every business and industry is different, but one essential item that should not be overlooked is how taxes might factor into the equation. For example, when we create models for customers, we might disaggregate information between departments because some might be doing better than others, and that could tell us something interesting. We also advise on how businesses can get the most out of their third-party and vendor relationships to stretch working capital commitments. This is just scratching the surface in terms of using the numbers to your advantage.

Q: What size or stage of business is a financial planning & analysis (FP&A) tool best suited for?

GHP: Believe it or not, there is value to be derived at any stage of the business — or any size for that matter. For an early-stage venture, it could inform your next round of capital-raising. For a seasoned, mid-size business, maybe you’re trying to squeeze out bigger margins due to workforce reduction or changes to the business model. And larger enterprises, obviously, there is huge potential to increase your EBITDA margins and, in some cases, prepare for an eventual sale of your business. So, there is absolutely a use case for FP&A services at every stage within the business lifecycle.

Q: Is it realistic for internal finance teams to produce their own financial models? What’s the justification for outsourcing this type of forecasting and analysis?

GHP: It’s a strategic exercise that many CFOs and finance execs have the expertise for, but not necessarily the time for. They are juggling so many day-to-day responsibilities — particularly now while grappling with economic uncertainty and market volatility — that oftentimes it makes perfect sense to outsource. Our advantage at MFA is that we have a dedicated team that is basically on-call for all things FP&A. Not only can we build the models, but we’re also available to help customers tweak and recalibrate them so they can optimize over time and alongside any changing variables within the business.

MFA’s Financial Planning & Analysis specialists can help provide your team with the critical transparency and analysis needed to make smart business decisions and ensure your organization is in the most advantageous position strategically, financially and operationally. Please reach out if you’re interested in learning more about MFA’s FP&A Services.

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