With 2021 in full swing I am delighted to have attended a number of online networking meetings, and naturally the state of business was discussed together with some predictions and outlook for what’s ahead.
I am struck by the number of comments such as “2020 was terrible, glad its over, 2021 will be much better.”
And maybe it will.
There are grounds for optimism with the arrival of Covid vaccines, a change of president in the USA (which not everyone feels is positive), and technology bringing new ways of working and opportunities for development.
I have decided to take a different view.
One reason that I found 2020 to be less than great was because I was hoping things would get better when the evidence did not back that up. I don’t believe I was alone in this.
From what I am reading currently, there are a number of things which may not go as hoped in 2021:
The Covid vaccination programme may not be administered in the UK as quickly as promised.
Even if it is, we do not yet know how long protection will last. We may have to vaccinate everyone again next year.
There could be further turmoil and uncertainty in politics, especially the USA.
In the UK we do not yet understand how our exit from the EU will affect trade. There are early indications of more paperwork for goods, and services may have issues with VAT.
While we have spent a lot of time and effort on Covid – understandably – our attention seems to have been diverted away from climate change. 2020 was the joint hottest year on record.
Stock markets, especially the US, are doing very well. Will these hold up?
A report in today’s Financial Times suggests the Bank of England do not really understand the implications of their Quantitative Easing (QE) programme – all £895 billion. Pretty soon they’ll be talking real money.
Unemployment looks set to increase as sectors such as retail reduce in scale or re structure.
These are not predictions: the only thing we know about the future is that we don’t know.
However, when making plans you can work on some possibilities which for some will constrain what they can do, and for others will be positive drivers for change.
This is the case for pessimism. On its own, it can come across as a rant, a moan, or a whine. It does not feel good.
An alternative approach is to look at how things could turn out worse than you would like, and then ask the question – so what?
So what if Covid lingers for 2021 and beyond? What is the impact on you and your (and me and my) business, and what action do you need to take as a result?
So what if the Stock Market turns into ‘Bear’ territory – what could be the impact and what will you/we do?
I prefer optimism, to me it feels better.
But I can use pessimism as a tool to help shape my planning.
Late addition: I have just listened to the RSA’s webinar on Britain in 2021 with Marc Stears and Hilary Cottam. Hilary uses a interesting phrase which may be useful middle ground if you are not keen on pessimism: ‘critical optimism’ https://www.youtube.com/watch?v=WdvagjKjxpc
For me – I will continue to enable people to learn more about finance and related business skills which will help them whatever the climate. Most of that will be done via my webcam rather than in person.
For you – how does 2021 look so far? Things will probably go wrong but no matter: what can you anticipate and then do something about?
Buzzwords of the Week – Discounted Cash Flow (DCF)
Definition – DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate – cash will arrive – in the future. This applies to both financial investments and for business owners looking at capital expenditure, such as purchasing new equipment. DCF analysis to estimates the money to be received, adjusted for the time value of money. Time value of money assumes that a dollar today is worth more than a dollar tomorrow.
For example, assuming a 5% annual interest rate, $1.00 (or £1, €1 or any currency) in a savings account will be worth $1.05 in a year. Similarly, if a $1 payment is delayed for a year, its present value is $.95 because it cannot be put in your savings account to earn interest.
DCF finds the Present Value of expected future cash flows using a discount rate. If the value calculated through DCF is higher than the current cost of the investment, the opportunity should be considered – in theory anyway.
Alternate View – Key tool for investment appraisal. Remember why we use this – it is a way of taking into account the problems that arise with waiting for cash to arrive. These problems are firstly risk (it may not arrive at all) and secondly opportunity cost (while waiting you cannot use it). The critical element is choice of Discount Rate, sometimes called hurdle rate. No matter how big your spreadsheet, this remains a completely human judgement call, maybe influenced by what you think is your cost of capital – see above!
Remember too that just because you get a positive NPV, you don’t just go ahead: factor in strategic context too.
Connect with me.
New for 2021 -; Friday at 9: Virtual Coffee
You know I like to connect: how about a virtual coffee next Friday 22nd at 9.00am? Indeed, every Friday at 9. A quick chat for around 30 minutes about the tough business questions of the day, your questions and my answers – or just catch up. I’m always interested in how things are going for you.
When: Jan 22, 2021 09:00 AM London
Register in advance for this meeting:
https://us02web.zoom.us/meeting/register/tZElcuCtpjojEtMSvT6lYQenR-S64ouUCw2Q
After registering, you will receive a confirmation email containing information about joining the meeting.
Online Learning – my online finance programme – How to Read Financial Statements. This is a series of 7 online lessons:
1. How finance fits with Strategy
2. The Language of finance
3. Owning & Owing – using the Balance Sheet
4. Measuring & Managing Profit
5. Measuring & Managing Liquidity
6. Budgets, what, why & how
7. The most important part of all
Each last between 20 & 40 minutes and includes the slides and videos to help you understand what good looks like in financial terms. The cost is just $49, and is available now at https://app.mastermind.com/masterminds/8443
Phil Ingle Associates – help business people put on their financial underpants over the top of their tights or trousers, so they become more confident, effective and successful. This is achieved by online and live training programmes, coaching, &speaking. I specialise in finance, negotiation, & communication. Can I help you? email me to schedule a call