In the business world risk and uncertainty are constant bedfellows.
Organisations, sensible ones at least, prepare budgets and forecasts based on their past experience, opinions, hopes and guesswork as to what the future is likely to hold. In a certain, more stable world this might be enough.
Now the planner needs a crystal ball or the insight of Nostradamus - not that even he got it right all the time.
Consider the last few years
- 2020-2021: global pandemic resulting in lockdowns and economic chaos
- 2021: Container ship gets stuck and blocks Suez Canal for six days -- effect on transport costs
- 2022: Russia invades Ukraine - effect on global gas prices and effect of sanctions.
- 2022-23: ChatGPT launched and goes global -- AI becomes a thing
- 2024: Election of Donald Trump as US president creates uncertainty due to his declared tariff policy - this continues into 2025.
- 2025: Donald Trump announces his worldwide tariff policies. Global financial markets immediately drop like stones and countries announce retaliatory tariffs. A trade war looms.
- Extreme weather events intermittently throughout this period affecting businesses.
Real-World Business Impact
So much for planning. Consider, for example, because of the latest tariff announcements from the USA:
- A very small company selling designer knitwear into the USA, after years of marketing and promotion, suddenly has its product price affected by a tariff which threatens 40% of its sales. Will people buy their lovely jumpers at a higher price or will that price increase be the end? Can they develop other markets - not in time to save that level of turnover. Their plan has gone down the drain and the owners of the business have sleepless nights.
- The whole Scotch whisky industry bemoans inevitable price increases which they claim will cost its members volume sales - but this is a luxury item for many consumers and Scotch whisky is often a vanity product overseas so their sales might well hold up - when will we know?
- Companies fear that heavy tariffs levied on other countries will result in them dumping product formerly meant for the USA into the UK and EU thus crashing the prices in the home market.
Opportunity in Crisis: The Accountant's Role
Where does this leave the forecaster and budgeteer? Rapidly revising their spreadsheets and digging out their risk analyses that's where.
But every problem brings out an opportunity. Nothing is ever all bad and every cloud... as they say.
Business and economic uncertainty can mean bonanza time for accountants. Whilst the in-house finance teams are revising projections, considering costs and thinking about how much of any price increases to pass on to customers professional accountants stand ready to advise and assist.
This is likely to be more relevant to smaller and medium sized clients who don't have the extensive in house resources larger organisations have. They can be knocking on their client's door as a trusted business advisor and talking about risk and the future with the organisation's management. When a crisis beckons there should be someone there holding the client's hand and helping them decide on a course of action which won't lead to disaster.
There is little point in gloom and despondency. Present crises will not be permanent and what seems bad today can seem little more than a bump in the road looking back. It is easy to get carried away when the financial press are forecasting the end of the world as we know it.
Dealing with risk and uncertainty requires a cool head and a measured and managed response. Time will be needed to evaluate what is happening or is likely to happen because knee jerk responses generally only add to the risk and make things worse. Accountants are used to dealing with risk and looking at the financial impact of 'what if' scenarios so they should get on with it and help the management come up with a workable plan to deal with whatever is going to affect their organisation.
When risks crystallise the accountants can step up and do what they do best -- advising and assisting in the hope that their advice, insight and practical help will enable their organisation to steer away from the rocks and into calmer waters.
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