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Updated on October 10, 2023
Inflation is a concern for many entrepreneurs. More than ever, rigorous risk and financial management is needed.
Organizations are currently facing significant challenges. Soaring inflation, rising interest rates, labour shortages and supply issues—this confluence of factors is creating an uncertain economic environment for businesses.
That’s why solid financial planning is critical. It will help you assess your company’s vulnerabilities, proactively curb risks and promote growth.
Here are the key steps to protecting your business’ financial health.
1. Assess the situation
Start by assessing how different risk factors could affect your business and determining where its most critical vulnerabilities lie. It’s important to take into account the issues at play in your industry as well as those that are specific to your business.
Ask yourself questions such as:
- How might these risks affect your revenues and gross margins?
- Do consumers consider your products/services discretionary expenses?
- Could your sales fall if inflation hinders consumer purchasing power?
2. Establish financial projections
Financial forecasting is an essential part of sound business management. It can help you identify key issues as well as potential solutions.
You’ll need to make a number of assumptions based on the economic factors identified in the previous step. The goal is to assess the extent to which these factors will impact the company’s profitability and liquidity. For example:
- Will sales volumes increase or decrease?
- What would happen if sales declined by 5% or 10%?
- Would you need to adjust your prices?
- What would happen if you lowered your prices by 5% or 10%?
- What would happen if your supply or transportation costs increased by 5% or 10%?
- Will you need to increase wages and labour costs in order to keep up with customer demand? If so, by how much?
- How long will it take to collect accounts receivable and pay your suppliers?
- Will the company’s profits be enough to cover your financial commitments?
- What investments do you need to make to keep the business operational and ready for growth?
This exercise will help you develop different scenarios based on changing risk factors and provide clarity on the tipping points for the company’s liquidity.
Thanks to this modeling, which is commonly called a stress test, you’ll have the information you need to manage risks before things become critical and proactively look for solutions. You’ll come away with a plan that addresses your business’ unique concerns.
3. Plan effectively
Here are some important tips to help you get the most from your financial forecasting:
- Develop projections for the next 2 or 3 years, since the current environment is likely to persist for quite some time.
- Be realistic and uncompromising. This will ensure the solutions you implement are right for your company’s actual prospects.
- Focus on cash flow. Your company can withstand a certain degree of loss, but if it lacks liquidity, you’ll quickly find yourself in a precarious situation.
4. Take advantage of financial assistance programs supporting innovation
Innovation is another key factor for business success. This is especially true in the post-pandemic era, as many businesses need to reinvent themselves in order to ensure their long-term viability.
Yes, innovation can be expensive, but there are certain tax measures and subsidies available that can help your business recover up to 85% of the expenses related to technology innovation.
Depending on the stage of your company’s innovation journey, there are two main tools at your disposal: grants and provincial and federal investment tax credits.
Here’s what you need to know about these two options.
Grants
- You must submit an application to a funding agency before your project gets started.
- Grants may be issued prior to or during the research and development (R&D) phase.
- Grants can be used to cover several types of expenses.
- Funding agencies have limited budgets and their grant amounts are capped.
- These programs aren’t necessarily recurring.
Investment tax credits
- Tax credits can only be claimed after the R&D phase.
- They apply to all kinds of R&D expenses and refunds are only issued after the work is complete.
- There are no limits on available funds or eligible expenses.
- Under the Scientific Research and Experimental Development Tax Incentive Program, you can be reimbursed for up to 73% of payroll expenses and 37.5% of subcontractor and material expenses.
- Tax credit programs are recurring.
- Tax credits are subject to approval by tax authorities, so there’s always a possibility that a claim could be denied.
You can combine grants and tax credits for the same project, and even for the same expenses in the project. Our experts can help you develop taxation strategies and help your business derive the maximum benefit from these programs.
Of course, it’s crucial that all your innovation work be carefully documented—through time sheets, technical reports, contracts, etc.—to justify your financing requests.
Have questions? Our expert teams can help your business develop a solid financial plan. Contact us to speak with one of our specialists.
For more information about the topics covered in this article, check out our Life After Grants webinar (in French).