Nov 28, 202211 min read

Strategies for Financial Resilience in a Challenging Global Economy

Research by: Elizabeth Bamidele & Bianca Riley

Challenges for the Global Economy in 2022

Economic downturn

Many nations implemented recovery measures to reduce economic downturn and many more like the UK, US and China are using this as an opportunity to build back their economies better. The global economy had been experiencing a strong bounce back as a result of this.
This is more uncertain with the looming recession brought about by inflation, rising energy prices and the war in Ukraine. This tenuous recovery process would be severely undermined by a new wave of Covid-19.
We observe this taking place, for instance, in China, where growth is currently slowing. The government has chosen to re-impose tough, extensive limitations as a result of the recent viral epidemics that have plagued the nation. Additionally, the real estate crisis is hurting the economy as a whole, with several repercussions

Increasing debt burden

A significant rise in the national debt is a second effect of the pandemic and the recovery strategies put in place. This presents a particular issue for developing nations, since the pandemic's economic effects have been somewhat tempered by the temporary suspension of debt payments for the poorest citizens. It is still uncertain what would happen if this precaution were completely removed.
Governments are not the only entities left with enormous debts; private sector e.g., commercial real estate businesses are also in this position. Also largely affected are businesses in the service sector, such as tourism, culture, and aviation. Companies are also being impacted by disruption to global supply networks, increased raw material costs, and high transportation costs. While families are being burdened with rising energy bills, cost of living expenses and increasing cost of commodities and services.

Geopolitical tensions impacting the economy

Higher costs are correlated with commodity scarcity. The American Federal Reserve is tightening monetary policy in response to inflationary pressure. It has stated that a rate increase, the first since December 2018, is anticipated from March.
Therefore, it could become more challenging for vulnerable businesses and nations to enter the credit market. The European Central Bank has similarly been increasing interest rates and has done so for the first time in 11 years, as per the graph below
The ongoing economic disputes between China and the USA over semiconductors is another source of tension in Asia, and this is in addition to the military issues surrounding Taiwan.
The United States has imposed restrictions on the sector, sometimes at the expense of its own technology and industries in an effort to halt Chinese technological advancement.
Another difficulty for the world economy is inflation, which has partly been brought on by persistent supply chain issues and increasing demand as a result of the economic recovery in the post-Covid era.

"Geopolitical tensions represent additional significant concerns. The first instance that comes to mind is the conflict between Russia and Ukraine. The fighting as well as the sanctions imposed have had negative impact on the area, as well as on Europe and the global economy. The effect of the pandemic and war has undoubtedly contributed to the impeding recession."

Minimising Global supply chain disruptions

Businesses that had not permanently ceased operations were questioned in August 2022 about disruptions to their global supply chain.
Nearly one in five (18%) of businesses with 10 or more employees that had not permanently ceased operations reported disruptions to their supply chain.
This was at the end of September 2022 and since the question was first asked in December 2021, this is the lowest percentage that has been reported.
The construction industry reported the biggest drop in businesses declaring that there had been a disruption and 12% reported an 8-point decline from July 2022.
The main impact was 33% of businesses with 10 or more employees, who said they were suffering global supply chain disruptions and a shortage of materials

"The pandemic has had a transformative effect in significantly shaping the global economy. After the pandemic many countries and businesses saw this as an opportunity to rebuild better. Today many countries and businesses continue to face significant economic challenges. Market volatility, energy prices and Ukraine war have created further challenges"

Main Challenges for most Businesses

From the Business Insights and Conditions Survey (BICS) for the period 20 September to 2 October 2022 reported in this section rising energy prices was most concerning.
Businesses that had not permanently ceased operations were questioned about their top business concerns as they looked ahead to October 2022.
In October 2022, more than two-thirds of businesses (70%) said they were concerned, and this number rose to 83% for companies with 10 or more employees.
90% of all businesses of all sizes reported some level of concern in the hospitality, lodging and food service activities sector.
The majority of survey results were submitted before the 23rd of September 2022 financial statement, and the and the chancellors budget statement on 17 November 2022

What is Business Resilience?

Business resilience is the capacity of a company to quickly adjust to changes in the environment while continuing ongoing operations, protecting people, assets, and the overall value of its brand.
Business resilience goes beyond disaster recovery (DR) and business continuity by providing post-disaster methods to reduce vulnerabilities, prevent expensive downtime, and keep operations running in the face of additional, unforeseen breaches.
Business resilience, operational resilience, cyber resilience, and supply chain resilience are a few examples of the diverse components of business resilience. The term's spread demonstrates how significant resilience has grown to be for governments, businesses, and several organisations
A business resilience plan's most crucial component is its definition of the business's final state once all recovery plans and resumption activities have been completed.
Once activities have resumed, it is simple to declare that a company has recovered from an incident, but that does not imply that it is has a robust resilient strategy in place.
A business must ultimately decide on what its ideal state should be after an incident. It must decide what defines a resilient state for it as a business to accomplish this successfully.

"Businesses that are resilient do not wait for disasters but actively plan ahead with contingency, strategic and financial plans. As a result of this they are better equipped to identify, manage, and mitigate current and emerging risk. They can leverage opportunities for sustainable value."

What is a Resilient Business Plan?

Resilience Business Plan

Anticipating disruption is fundamental to resilience, however, to prepare for a disruptive occurrence, a business must be forward-thinking. This is where a business resilience plan can help. A resilient business plan is designed to help businesses navigate disruptions and return to a state of profitability and growth. In short, it outlines the necessary steps a business must take to mitigate and survive a crisis.

Steps for building a resilient business plan

Mitigate weaknesses in the current business operating model ahead of any event
Define how the business foresees likelihood/impact of risks and actively mitigates these
Develop an alternative target operating model, strategic business and financial plan
Determine how the vision, culture and people strategy can propel business recovery.

The benefits of Business Resilience planning

Resilient business plans enable businesses identify mitigate and respond to risks quickly and effectively.
Resilience business plans allow businesses withstand unexpected shop and rebound from the disruption.
Resilience enables businesses thrive because of their ability to pivot and adapt to new business model.

Phases of Business Resilience?

There are three phases to building business resilience: Survive, Recover, and Thrive

Survive: The businesses that have been most severely impacted by the recession are doing whatever it takes to keep the lights on and simply continue to operate. These businesses are suffering from a major decline in sales, notable employee, and expense cutbacks, or possibly a significant loss of business that is endangering their survival.
Recover: Businesses in this phase are responding to financial changes by using existing systems or implementing new strategies to deal with the unexpected. At this point, businesses can start to use their resilience to mend and restore what went wrong during the initial loss of business.
Thrive: Businesses that are in the thrive phase are getting ready for opportunity and growth. They are currently integrating components that will advance their company and help it become more resilient to the new business environment.

"Only 57% of businesses feel ready to deal with the unexpected, widespread disruption of regular business operations despite its significance. Resilience is critical for the future of any business because it is essential for sustainable growth and survival of the business for the long-term."

Steps to Implement Resilience in Practice

Businesses have now developed methods to address the aftermath of the COVID-19 pandemic's issues, but the need for continued resilience must be reinforced.
Businesses must prepare for both the primary impact of future disruptions as well as their secondary and tertiary impacts.
Future disruptions may be different. The impact may take a while to manifest but can rapidly pick speed and the knock-on effects can build gradually until an emergency tipping point.
Few businesses have developed strategic resilience for a variety of reasons. The ambition of building a resilient business can occasionally conflict with the more immediate goal of profits.
Managing risk of redundancy can promote resilience in supply chains, but it also raises costs and lowers returns on investment, which makes building resilience difficult to sell to businesses.
Resilience can only be achieved strategic business planning and isolated resilience initiatives are unable to work together to accomplish a sustainable solution.

"In a challenging global economy, with rising inflation, interest rate and energy prices, businesses need strategies for cost and financial risk and resilience. Implementing strategies for business resilience is mission-critical to businesses and essential for long-term growth."

Steps for Building Long-Term Resilience

Business leaders can apply the following steps and best practices to build strategic resilience

Obtain management buy-in into strategies to improve risk and resilience
Start tracking resilience KPIs and reporting it internally.
Lessen your reliance on extrapolations derived from budgeting and planning.
Formal risk assessment, control, and governance need to be abandoned by risk functions.
Determine the businesses inherent strengths, weaknesses. opportunities and threats
Develop first-line resilience skills, as well as a strong team and operational resilience.
Establish a mechanism for early identification and mitigation of current and emerging risks
Proactively tracking current and internal and external hazards.
Integrate risk at enterprise level, into all aspects of the business
Discuss resilience in terms that stakeholders and investors understand
Establish an early-warning system
Embed resilience within first-line teams

Geopolitical tensions Impacting the Economy

"For many businesses financial difficulties from the economic slowdown are likely to continue. As evidenced by indicators such as the rising energy prices, increased inflation and market volatility, so businesses must remain cautious without stifling innovation."

From the Business Insights and Conditions Survey (BICS) for the period 20 September to 2 October 2022 reported in this section rising energy prices was most concerning.

The European Central Bank has similarly been increasing interest rates and has done so for the first time in 11 years, as shown above.

The main impact on firms, indicated by 33% of companies with 10 or more employees, who said they were suffering global supply chain disruption, was a shortage of materials.

Why is Business Resilience Fundamental?

Financial resilience: Businesses frequently lose sight of long-term financial risk in favour of short-term financial gains. The key to minimising fluctuations in income, cost, or credit is striking a balance between the two by maintaining a strong capital and liquidity position.
Technological Resilience: Businesses that are able to undertake investments in safe, adaptable digital software technology stacks and utilise high-quality data to make strategic and operating decisions are better able to compete and deliver projects safely, on time, and within budget.
Organisational Resilience: Employee recruitment, retention, and satisfaction are crucial components of mastering business resilience. Companies that promote diversity and inclusion, that create a culture of agile learning, and hire top talent are better prepared to adapt.
Operational resilience: Without alternative plans in place, supply chain disruptions can erode productivity and cause business operations to fall apart. To be able to adapt to rapid changes in supply and demand, resilient firms must add redundant operations to their supply chains risks.
Business-model resilience: When the pandemic forced businesses to switch to remote working conventional business models were became redundant. Businesses that had adaptable models were able to pivot as necessary, ensuring business continuity during an uncertain period.

"Implementing resilient strategies is much easier stated than done. This is especially true when businesses lack the adequate expertise in risk and resilient strategies. Or sufficient liquidity to invest in the right technology to compete effectively."

Frequently asked Open Book Questions (FAQs)

"Questions are often asked about financial resilience. For example, why do we need to invest in business resilience now when the priority is managing costs and maximising profit.What are the risks of inaction with regards to sustainability? When will we obtain our return on investment if we invest in a more resilient strategy?"

How can resilience help with a more successful business?

Resilience is best described as a business' ability to generate value sustainably, maintain operational efficiency, and be able to succeed sustainably under challenging economic conditions.

How do you achieve resilient growth throughout the business cycle?

To establish resilience, businesses must concentrate on developing a healthy balanced portfolio and strategies to compete in the market for long-term value creation.

What is business resilience risk?

Business resilience is the ability to respond immediately to risks and new opportunities while maintaining essential business activities, protecting employees, assets, and the reputation of the business.

What are the four components that comprise business resiliency?

These include 1. Risk assessment and business impact analysis 2. Risk mitigation plan development 3. Testing and analysis; and 4. RIsk monitoring and program sustainability.

What are the most critical issues facing global businesses?

Rising energy prices market volatility and inflation rate increases.

Why do you think it is important to aim for a global market?

Entering international markets enables companies expand to new markets and reach a wider customer base

What suggestions would you provide for adopting global business resilience?

Decide on your target markets, assess the risks and feasibility of the revenue sources.

How do small businesses contribute to the global economy?

Small businesses also contribute to global economic growth by providing 66% of global employment opportunities.

How CFBL consulting can help?

Undertaking pre-audit diagnostic and current state risk assessment
Perform Independent actual carbon cost audits to prevent greenwashing
Engaging with key stakeholders, board, and leadership for buy-in
Communicating with stakeholders and supply chain early on
Establishing protocols for your net zero strategy
Implementing protocols through workshops and training
Benchmarking your carbon footprint for carbon reduction and offset
Developing the investment business cases, for decarbonisation
Establishing a sustainable, ESG, and Net Zero strategy
Independently reporting actual impact against goals
Account, tax, and compliance reporting for ESG and carbon cost

References

https://www.ons.gov.uk/businessindustryandtrade/business/businessservices/bulletins/businessinsightsandimpactontheukeconomy/6october2022
https://credendo.com/en/knowledge-hub/four-challenges-global-economy-2022
https://www.forbes.com/sites/forbescommunicationscouncil/2022/08/23/three-ways-businesses-can-prepare-for-challenging-economic-times/?sh=40eee3ec16ca
https://hbr.org/2020/07/a-guide-to-building-a-more-resilient-business
https://www.techtarget.com/searchcio/definition/business-resilience#:~:text=Business%20resilience%20is%20the%20ability,assets%20and%20overall%20brand%20equity.
https://www.mckinsey.com/capabilities/risk-and-resilience/our-insights/from-risk-management-to-strategic-resilience
https://www.dataminr.com/resources/a-comprehensive-guide-to-business-resilience
https://credendo.com/en/knowledge-hub/four-challenges-global-economy-2022
https://www.aberdeen.com/blog-posts/blog-ecm-3-phases-business-resilience/
https://www.forbes.com/sites/forbesbusinesscouncil/2021/05/17/13-critical-steps-to-building-a-business-resilience-plan/?sh=6aa3a5212fb7
https://www.cnbc.com/2022/07/21/european-central-bank-raises-rates-by-50-basis-points-its-first-hike-in-11-years.html
https://graphics.reuters.com/
https://www.forbes.com/sites/sap/2020/09/25/the-key-to-resilience-and-sustainability-interconnected-industries/?sh=33f06be320f3
https://thebusinesssniper.com/6-top-key-success-factors-for-any-business/

What CFBL Consulting does?

CFBL consulting offers cost assurance audits and sustainable strategy consulting services. This includes an initial ESG assessment, an X-ray view of actual costs to prevent or evidence greenwashing, impact reporting, a payroll audit to safeguard equal pay, and practical training on how to embed ESG KPIs into finance, commercial, and project investment decisions. We identify, resolve, and follow through. By establishing ourselves as strategic partners, we govern and help implement sustainable strategies. Our roadmaps ensure that project plans are successful, as a result, we measure our success by yours.

Who We Work With and What We Do

Infrastructure project: cost assurance audits, systems payroll HR audits & protocols
SME Business Strategy: 5-Yr strategic business plans and financial statements
Fintech/Transformation advisory: minimising risk and optimising business case ROI
Sustainability & ESG: pay-gap carbon cost audits reporting ESG finance training
Training: delivering case-based training for buy-in to technology & staff upskilling
Fintech & Digital: strategy cost optimisation & digital transformation advisory
Steering Group (CSR): cost assurance and audits on infrastructure projects/contracts

Sustainability & ESG Strategy Tips - How can CFBL Consulting help

Developing and implementing a sustainable business strategy for growth/scaling
Sustainability/ESG strategy: implementing, carbon measurement and benchmarking
HR/Payroll audit: Independent HR, payroll cost, pay-gap gender balance auditing
Sustainability & ESG: strategy implementation, carbon cost auditing/impact reporting
ESG Finance training: upskilling staff/supply chain on ESG KPIs in decision making
ESG protocols: training & designing controls, tools, and templates for ESG reporting

Infrastructure Projects - Tips & How can CFBL Consulting help

Cost assurance: implementing capex people, process, systems & controls
Protocols: training & designing project/contracts process, tools, templates
Independent cost audits: verifying actual/ defined cost on cost/open book contracts
Systems auditor: examining financial records, controls, and cost systems for integrity
Pre-audit diagnostic: identifying risks on cost-based/open book alliance contracts
Independent contract auditor role: Undertaking internal project/contract auditor role
Legal records: facilitating records for legal compliance on cost/open book contracts
Payroll audit: Independent HR, payroll, carbon cost, gender pay-gap/balance audit
Business case: Implementing Capex strategy/developing investment business cases
ESG Finance training: upskilling staff/supply chain on ESG KPIs in decision making
ESG protocols: training & designing controls, tools, and templates for ESG reporting

SME Business Strategy -Tips & How can CFBL Consulting help

Scale-up investor funding pitch diagnostic assessment and recommendations
Developing a sustainable business plan for scaling up, funding, and advisory
Developing/implementing strategy: sustainable business strategy for growth/scaling
5-Yr Strategic business planning: financial statements, analysis for funding & grants
People training & upskilling: business and supply chain engagement and training
Independent Fintech/Transformation Advisory: minimising risk and optimising ROI
Capex Investments: optimising grants, funding R&D tax credits & capital allowances
Financial management: tax, planning & implementing financial controls for resilience
Finance business partnering providing strategic advice in financial decision making

Fintech & Digital Transformation Advisory - How can CFBL Consulting help

Commercial systems: advisory on commercial, contract, cost, audits & projects
Financial systems: advisory on financial, HR, management, and reporting systems
ESG KPI reporting: Insight and benchmarking for reporting and competitive edge
Independent advisory on payroll, project, contract, cost, audit and reporting software
Independent advisory on technology that best aligns with strategic objectives
Training: delivering case-based training, for buy-in to technology & staff upskilling