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Business Development & Marketing Cash Flow & Forecasting Finance General

VUCA – protecting your business when nothing is predictable

VUCA uncertaintyVUCA is an acronym devised by the US military to describe an environment of Volatility, Uncertainty, Complexity, and Ambiguity.
But it doesn’t only apply to conflict zones. At the moment, and for the foreseeable future, it could equally well describe the climate in which business is operating.
For UK businesses the predominant uncertainty has been the situation, arguably since June 2016, when the country voted by a narrow margin to leave the EU. Since then, there have been three years of VUCA which won’t end tomorrow when we know the outcome of today’s General Election.
In the meantime, the UK economy has been sluggish, with the latest data from the ONS this week indicating that there had been almost no growth, a derisory 0.7%, in the third quarter of the year.
However, there are other influences that have combined to make uncertainty the new business norm, including a rise in nationalistic sentiment and population, trade wars between the US and China and also those between Japan and S Korea, all of which have led to a slowdown in the global economy.
Longer-term influences are the rapid pace of automation and AI development and, increasingly, worries about the future of the environment, which are influencing both consumer and investors in the direction of more ethical and responsible behaviour and decision-making.
Given the headwinds, VUCA is likely to get worse and will affect businesses for a long time to come.

Can businesses turn VUCA into a positive?

Despite its reference, VUCA offers terrific opportunities to entrepreneurs and adaptable businesses although exploiting them tends to be at the expense of those businesses, normally large ones, that rely on stability and predictability.
The website  vuca-world.org re-imagines the acronym as Vision, Understanding, Clarity and Adaptability and several business writers, among them Karen Martin and Sunnie Giles, both writing for Forbes, make the point that ultimately dealing with uncertainty is down to the creativity, agility and skill of people in an organisation.
Giles suggests that businesses need a change of mindset, so that they can react to fast-moving changes.
These include “moving from hierarchy to self-organisation”, “democratising information”, “speeding up interactions” and using “simple rules to make quick decisions, rather than perfect analyses.”
Of course, there will need to be effective and flexible leadership and a sound knowledge of the business situation at any point in time, which makes such things as management accounts and cash flow monitoring, as well as sound knowledge of customers’ changing behaviour and requirements even more crucial.
I would argue that it is often SMEs that are in the best position to deal with a VUCA climate as very often they are flatter organisations where there has to be a good deal of multi-tasking when the numbers of key employees are fewer than in larger, more hierarchical organisations.

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Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance General

Can forecasting help SMEs prepare for the future in uncertain economic times?

looking ahead using binocularsOur regular followers will know that we generally advise business owners to revisit and revise their plans and forecasts over the quiet Christmas period and to give some thought to setting goals for the coming year.
In the aftermath of the events of 2016 many will have found it harder than usual to see the way ahead given the uncertainties surrounding the economy both at home and in the wider world.

Predicting the future means understanding where you are and knowing what resources you have

Reviewing a business’ performance over the previous year is undoubtedly a worthwhile exercise for establishing its current position, including identifying any weaknesses in your financial position as well as those systems that should be improved.
A business that has existed for some years will have experience of a variety of trading conditions and how they were overcome to use as the basis for analysis.
It is also likely to have an established network of suppliers and clients/ customers for gathering information about options including sources of finance. Depending on the goods or services it supplies it will at least understand the competition it faces and be aware of the demand and future trends.
The relatively new SME will not have quite the same level of experience and information, although hopefully it will at least have carried out research into demand, likely customers and how to market to them, as well as having identified the level of investment needed.
Whether new or more established, both can use the techniques of a SWOT Analysis to identify their Strengths, Weaknesses, Opportunities and potential Threats to clarify their current position in an organised way and identify the So WHAT actions that arise from a SWOT Analysis.
Please refer to the K2 Knowledge Bank for more on SWOT Analysis and how to get the most out of them: knowledgebank.k2-partners.com.
This preparation work will help with setting the following year’s goals.

The unanswerable questions and being prepared

The major problem facing all businesses at the start of 2017 is, of course, the economic uncertainty surrounding the possible actions of a new US President and the lengthy process of negotiating the UK’s exist from the EU.
crystal ballForecasting for a business against this background is certainly going to be tougher.
Goals will need to be set that make allowances for best and worst cases, regardless of whether a business is local or an exporter.
Absolute knowledge and control of cash flow, sales, invoicing and comparing monthly management accounts with the forecast as a regular review is likely to become imperative.
If possible, ensure there are at least some financial reserves to deal with the unexpected.
While it is plainly foolish, even if it were possible, to forecast the future in any detail, especially now, there will undoubtedly be unexpected opportunities as well as shocks.
Businesses will need to cultivate agile and flexible cultures, systems and processes to be prepared for both the opportunities and potential hazards of surviving and flourishing in the current economic climate. Courage and nerves of steel would probably help also.