Forecasting in an uncertain environment

Recent uncertainty in the market caused by foreign conflicts, supply chain risks, rising inflation and a war for talent means that it has arguably never been more important for businesses to be able to monitor, assess and adjust their business economics to help them react to sudden changes in their market.

Market volatility has forced all businesses to rethink their models; those that can react quickly to market changes are able to do so by understanding their financials in detail; and having well-built financial models in place plays a key part in this.

The dramatic increase in inflation coupled with a lack of wage inflation means that consumers lose purchasing power, and it is important to consider how consumer behaviour will change as a result. Companies with price sensitive products and high competition may find that increasing prices above wage inflation reduces consumer loyalty and leads to revenue below that of a lower price point. Allowing management to consider the impact of “stickiness” of their customers is a key element of a well-built financial model.

A model that allows for sensitivity analysis would enable your business to consider various scenarios and establish areas where your business may be more vulnerable to market conditions – and crucially, allows you to identify opportunities for growth and areas where a competitive advantage can be gained.

Our Financial Model Build team, led by Janie Reid, has a winning formula to help your business through crisis, into recovery and towards opportunities for greater success. Our tried and tested approach to model building can help your business successfully endure through trying times and can put you in a stronger position to take advantage of future opportunities.

In the depths of the COVID-19 crisis, a client came to our modelling team to help them build a rolling 13-week cash flow model to assess the impact of the crisis and run scenarios to help the business recover. We created a model that was flexible enough to assist the business in their cash flow management through this difficult time but also with an eye on how the model could be used to futureproof the business. Our client recognised the value that a good model could bring and was impressed enough that we were commissioned to build a full-scale operational model for the wider business. The rolling 13-week cash flow model continues to be a critical part of managements strategic planning and has left them well positioned to manage the new uncertainty posed in the market and identify potential business opportunities.

If you have your own financial model for your business, our Model Build Team also offers a free ‘Fit For Purpose Assessment’ (FFPA). Although some models are fit for purpose, many will not stand up to the rigours of a transaction process. Our approach to financial model building not only brings welcome clarity in times of uncertainty, but also has the potential to add real value.

To find out more about BDO’s Financial Model Build service and how it can help your business, please contact Janie Reid.