The coronavirus has turned many small and big companies upside down.
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The decrease in sales, problems with suppliers, remote teams, all this should be managed wisely. These challenging times require business owners to put planning and, primarily, financial planning in the first place to ensure the survival of their companies.
There are several reasons for how financial modeling can help business owners to manage uncertainty.
1. It helps to keep the focus on priorities
It is easy to lose focus during these troubled times. There is negative news from all over the world. We care not only about our businesses but also about our families and their health.
The businesses are so unprotected against the pandemic, and we need to stay calm and analyze the situation. Some business activities will be stopped, and others will be redesigned. The right financial model will help you to identify the crucial activities and focus on them.
2. It shows the stability of the company and its margin of safety
Detailed financial analysis of the company will show the extent to which the company can react to the changes. You can calculate and analyze the main ratios, such as stability, liquidity, profitability, gearing, and others. You can also calculate the break-even point and see the acceptable decrease in revenues to keep the company profitable.
Incidents can affect the company’s ability to pay bills, make payroll, or respond to market changes. Therefore, it is crucial to ensure an excellent level of financial stability.
3. You can analyze the financing sources
It is the right time to assess your financing expenses and consider possible refinancing. The financial model will show you the most expensive high-interest loans and, maybe, a high level of gearing. If it is possible, manage these issues should avoid the crisis.