Remember January 2020? It might feel like ages ago, but there was a time—this year—when things were somewhat normal. But then everything got flipped upside down. From the seemingly neverending lockdowns to the constant blame games to the quadrennial circus that is election season, 2020 has been a long year—and it’s not over yet. But as a distribution leader, you’ve done everything you could to keep moving, keep the lights on, and ultimately keep the business going.
From emergency changes to the supply chain to health and safety measures, you’ve faced seemingly endless disruption and incredible challenges. But what’s next? More uncertainty.
When can your business get back to normal? When will your revenues come back to pre-lockdown levels? When can you start bringing in international products without extra steps? These are all questions that you might not be able to answer just yet. However, with the end of year on the horizon, you have to put some kind of plan in place, even if you don’t have a clear picture of the short term.
Nearly 11 Years of Growth—Followed by an 11% Drop
According to the MDM and Oracle NetSuite report titled Economic Benchmarks for Wholesale Distribution, prior to February 2020, we were in for a continuation of the record economic expansion.
Distributors were balancing the worry of tariffs with the celebration of lower taxes and continued deregulation, and MDM had predicted somewhere between 4.4% and 8.2% growth in 2020. That… didn’t happen. Understandably, what did happen wasn’t exactly something they could predict.
“After a record economic expansion summing 10 years and 8 months, the United States officially entered recession in February 2020 due to the COVID-19 pandemic. At the onset of the pandemic, in March and April, wholesale trade sales decreased by 21.4%, though it increased by 5.4% in May.
But 2020 is on the way out. Lockdowns are easing, jobs are coming back, and 2021 hopes to present some relief—right before a huge 2022.
“Wholesale distribution is projected to decline by 11.1% in 2020 compared to 2019. Distribution should return to modest growth in 2021 (2.6%) and strong growth in 2022 (9.5%), but the recovery will be a slow climb and industrywide sales growth won’t return until the second quarter of 2021. […]
[2021] marks the first full year of industry-wide growth, at least for the baseline and optimistic scenarios. The baseline scenario for wholesale distribution revenue is 2.6%, while the optimistic scenario is 7.1% and the pessimistic scenario is -8.5%.”
But how does a company prepare for action when there’s nearly a 16 percent gap between optimistic and pessimistic expectations? Plan for everything—and shorten your window.
Planning for a Variety of Scenarios: Scenario Planning and Forecasting
Something we discussed in our article on the first steps to take as the economy reopens, a key value for companies working to reopen is scenario planning. Though the article does highlight seven steps including business model assessments, customer relationship changes, and more, distributors need to take a hard look at finances and start running forecasts able to handle a variety of changes.
Look at Where You Stand
Calculating runway and recovery should blend optimism with wariness, and you should consider a variety of scenarios for the next year.
NetSuite recommends you Run multiple scenarios assuming:
- revenue shortfall that you experienced in the March and April timeframe stays constant through the year,
- the revenue shortfall persists into the first half of 2021,
- and revenue declines accelerate through the end of the year
Calculate Forecasts
From here, you need to discuss new approaches to forecasting. Forecasting is hard enough in normal times. But in challenging ones, it’s a nightmare. That said, this is your next step—taking a new look at what’s next for your business, looking at cash flow, burn rate and liquidity under baseline, optimistic, and pessimistic scenarios. Ask how it’s going to change your hiring and spending decisions, and build your business around that.
Shorten the Window: Your Next 13 Weeks
In an Accounting WEB Article, Edward Webb, Corporate Financing Consulting Partner at BPM LLP, recommends that recovery begins with planning the next 13 weeks. Using your balance sheet, income statement, and statement of cash flows, you should be able to plan your cash flow for the next 13 weeks using the following:
- Historical Financials (three years preferable)
- Detailed Operating Data
- Estimates of Future Performance
- Identified Alternate Scenarios
- Detailed Inflows and Outflows
- Employee Information (Increases and Decreases)
- Other Balance Sheet Information
Webb adds, “Cash flow forecasting also requires some estimates of future performance – both company-specific and the broader economy. When coupled with a firm understanding of historical relationships from the company’s financial data, the estimates can take shape into a forecast iteration. This makes even more sense when informed by detailed operating data and expected changes in operation.”
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As a leading NetSuite Partner, we can help minimize the risk of an ERP project and are excited to offer this discount for new clients ready to be more successful in 2021. Get to know more about this offer here, and check out our two latest resources on Cloud ERP:
