Specialist Dilip Patel works at the New York Stock Exchange. While it is not always possible to predict what the local and global economies will serve up in 2019, good financial planning will help. (AP Photo/Mark Lennihan)

South African businesses have had to negotiate a volatile economic environment over the past 12 months. From escalating petrol prices and the state capture scandal, to credit-rating downgrades and reduced consumer spending, it hasn’t been an easy ride for many.

While it is not always possible to predict what the local and global economies will serve up in 2019, good financial planning will help organisations be prepared for any challenges that may come their way.

More than a budget

Innovative Accounting Solutions Director, Stefani du Preez, says financial planning is more than a simple budgeting process. “A common mistake is to view a financial plan as a once-a-year ‘necessary evil’ that is never referred to again. Financial plans need to become part of the day-to-day business process.

“A financial plan should not be static. It needs to be a living document that anticipates and reflects the changes in the business. After all, things don’t always go exactly as you planned. A business may win an unexpected project a few months down the line, which will necessitate changes to strategic and financial plans,” she adds.

Innovative Accounting Solutions advises its clients to create financial plans that consider three scenarios. “The first is a no-growth scenario; the second a moderate growth scenario and finally, a top-level scenario – or the ideal situation they would like to be in. It is important to be realistic on the one hand, but optimistic on the other. If a business is not optimistic it is unlikely it will realise its goals,” notes du Preez.

“Businesses should consider every possible scenario as part of the financial planning process. In addition to basic budgeting, they need to do projections, incorporating elements such anticipated employee growth, possible capital outlay and the need for a contingency or back up fund,” she says.

Incorporating risk

Risk typically forms part of a company’s strategy for the year, but it also informs the financial plan.

Du Preez says some businesses are more risk averse than others. “While some businesses prefer to stick to solid, more low-risk projects, others will jump into new projects even if significant risk is involved. What is important, however, is that they all weigh the risk carefully, whether they are risk averse or not.”

Even low-risk projects will inform financial projections. “The riskier projects might promise greater returns, but they could also not deliver at all – businesses have to plan for that possible scenario too and if they take on risky projects that require major capital outlay, they will have to plan for it. They will also need a plan to recover the money if the project is not successful,” notes du Preez.

She says if a business is on a lower risk projection, then its financial plan will probably have less variables and the business will grow at a small, but consistent rate. “Businesses that take on riskier projects may experience months where their income shoots up or their expenditure increases dramatically if they have major capital outlay or set-up costs.

“At the end of the day, the risk profile of an organisation depends on how the business owner feels about risk and whether the business has the resilience to take something risky on and the ability to recover if it fails.”

Consider outsourcing the financial function

One way for businesses to reduce stress around financial planning and related processes is to outsource the financial function to experts. This allows business owners to focus on growing their businesses and not get caught up in time-consuming administrative and accounting tasks.

“If a business owner is an engineer, for example, he or she is probably not an expert on accounting or tax issues. The idea around outsourcing to pass on the technical day-to-day elements of finance management to people who are good at it and allow them to ensure the books are written up every month, that they are accurate, that management reports are produced and interpreted, that SARS filing is done on time and that the business has tax clearance when it pitches for a tender,” says du Preez.

Importantly, outsourcing the financial function can save businesses money. “Businesses save when they outsource because there are less mistakes, SARS payments are done on time, the business get early warnings about potential cash-flow issues, as well as whether they need to get an overdraft or consider investing excess cash. A good outsourcing firm will also ensure that the financial plan remains the living document it is meant to be and that it is reviewed and updated regularly,” concludes du Preez.