Your new approach
Whether preparing or updating your financial projections and budgets, and taking into account events of the past year and the likely impact on the way we now work, you should consider a more practical approach as follows:
- Budgets should be updated to reflect the firm’s post COVID-19 plans. They will encompass the new ways of working, such as less office space and travel requirements, but increased IT costs in relation to infrastructure and cyber security provisions.
- Consider the impact of the IFPR regulation and its additional requirement for capital, liquidity and other threshold monitoring.
- Develop multiple scenarios for revenue and expenditure and use these to stress test the budget and the underlying assumptions used to counter periods of uncertainty (for example another lockdown in the near future).
- Consider preparing budgets based on worst-case scenarios, such as delayed cash receipts and investor redemptions, to assess the impact on capital and cash positions.
- Identify the financial and operational levers that can be pulled to conserve and generate cash, and potentially increase access to funding and the potential squeezes on management and performance fees metrics from investors.
- Build various options and contingencies into budgets.
- Incorporate specific trigger points into scenario testing so management can be prepared to take pre-emptive action before the firm gets into major difficulty.
- Prepare a wind-down plan (as required under the IFPR).