COVID-19 certainly created a great deal of uncertainty for most companies and, though the economy is now on an upswing, the reach of the pandemic remains. Companies—both those who were negatively impacted by COVID-19 and those who benefitted from the pandemic’s tailwinds (grocery and healthcare services, for instance)—still face significant challenges in forecasting both revenues and additional expenses related to supporting that growth. While the worst may be over, the reality is that the uncertainty it is caused is here to stay for the remainder of 2021, and likely into 2022.
In complicated times like these, it is tempting to throw up your hands and simply not focus on forecasting—after all, if the experts are having a hard time doing it, who could blame a business owner for putting it off? But, despite the difficulty, this is the wrong decision. A lack of rigor in forecasting revenues often causes paralysis in planning and prevents management teams and lenders from taking needed actions.
Restructuring professionals live every day in a world of significant uncertainty. We understand the need to forecast based on the best available information and to build sensitivity analyses around the range of potential outcomes to understand how each eventuality could impact the business and guide real-time decision making. This vital work also forms the foundation for productive engagement with lenders, customers and suppliers, and sensible forward planning.
Having watched the evolution of forecasting activities and related discussions throughout 2020 and during the first quarter of 2021, we have some observations that we believe are valuable and can be applied in Q2 and the remainder of the year.