The Great Unknown: Risk and Financial Planning During COVID-19
2 minute read

Risk and Planning During COVID

COVID-19 is forcing small businesses to make high consequence decisions about the health and safety of their employees and customers while maintaining their long-term financial viability. Confidently managing cash flow and allocating grants and loan money seem impossible in an environment where factors change daily. However, VtSBDC advisor, Steve Densham affirms that risk-taking is crucial to the long-term success of a business, regardless of a pandemic.

Projecting the future is at the crux of business strategy. Enacting forward-thinking business plans in a volatile economic environment requires risk-taking. However, University of Vermont Economist and Monetary Theorist, Joseph Ament, explains why risk-taking right now feels different. He says, “A shock like COVID, however, is unknown. We could not have predicted that it was going to come and could not have assigned the risk of a pandemic into our financial models. This is uncertainty.”

Business owners are not only coping with the risks normal to running their businesses but defending against an elusive threat with no end in sight. VtSBDC disaster recovery advisor, Debra Boudrieau, argues that the pandemic environment is unlike previous periods of economic instability because it has no estimated end-date. Unlike Hurricane Irene, there is no telling when the clouds of COVID will stop raining. Unlike the Great Recession, there is no proven pandemic stimulus package. Business owners, policymakers, and customers are gripped by fear of the unknown, making ordinary decisions feel extraordinary.

VtSBDC advisor, Steve Densham, reminds business owners that embracing the uncertainty and inaccuracy of financial planning is all part of the entrepreneurial mindset. He posits that not only is there a way to use standard financial planning strategies during this time, but it is necessary. He says, “A business must really embrace the uncertainty of any financial projecting.” He advises clients starting with data, but don’t stop there. Embrace the fluidity and variability of financial projecting by knowing how your business was trending before COVID-19. Then, consider external factors and assess the viability of any pivot strategies.

Similarly, in a webinar hosted on 15 July by the Lake Champlain Regional Chamber of Commerce, People’s United Bank advisor Zuzana Bochu recommended to start financial planning with the question, “Where do I want my business to go?” By thinking long-term, business owners can confidently determine where to spend their money, and how that investment fits into their vision for the future.

COVID-19 has challenged the ways businesses think about risk. With additional considerations like grant money, debt, and regulation, it is less clear how to prioritize expenses and weigh the costs of staying open. By using traditional financial planning tools and realizing future goals, a business can think through how to meet its targets with the resources it has right now.

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