The signs are pointing to an impending downturn in the global economy sometime in 2024. According to the World Economic Outlook from the International Monetary Fund (IMF), global inflation will decrease from 4.1% by 2024 after a period of fluctuations.
It has also reduced the growth forecast for 2024, which suggests that the global economy may be poised to lose momentum thanks to factors such as high interest rates, and ongoing political tensions.
With stormy economic weather on the horizon, small- and medium-sized enterprises (SMEs) like yours should carry out your upcoming financial year-end closing with the possibility of a recession in mind, so as to be best prepared for it if and when it does happen.
How Undertaking A Year-end Closing Can Prepare Your SME For An Impending Recession
Carrying out a financial year-end closing can significantly benefit a business in preparing for an impending recession in several ways.
Better Cash Flow Management
Analysing cash flow statements can help you better manage the cash reserves of your SME, and ensure that your business possesses sufficient liquidity to weather the impact of an impending recession.
With a detailed review of expenses and revenue streams, you can identify multiple cost reduction opportunities for your business. These might include contract renegotiations, reductions in discretionary spending, and optimising your operational processes to be more efficient in resource usage.
Assessing The Financial Health Of Your SME
6 key ratios to consider when assessing financial health; Source: CA Shiva Prakash H S
The year-end closing process gives you a means by which to assess the overall financial health of your SME, through reviewing financial statements such as income statements and balance sheets.
This will give you valuable insights into your business’s current financial position, including any debt levels and liquidity, and help you identify areas in your business that need to be improved and reinforced before a recession arrives.
Enables Budgeting and Forecasting For Tough Times Ahead
When you’ve carried out the year-end financial closing process for your SME, you get the data and insights needed to create your business’s budgets and financial forecasts for the coming year. This is especially necessary when you’re facing a potential economic downturn, as you can then plan accordingly.
For example, the insights from the year-end closing can help you identify and mitigate risks to your SME’s financial position, such as exposure to market volatility, customer credit risk, and supply chain vulnerabilities.
It can also help you come up with an overall strategy to help your business weather tough economic conditions, such as focusing on product lines, services or markets that are more recession-resistant, and divesting from more vulnerable investments
As we can see, the financial year-end closing process is a critical tool for preparing your SME to manage the impact of an upcoming economic downturn, up to and including recession conditions. It does so by equipping you with the necessary information and insights to make informed decisions, and implement strategies according to enhance the resilience of your business.
However, it does not change the fact that the financial year-end closing is a complex process, and your finance team will need the right tools to support their effort. The question is, what would these tools look like?
Cloud ERP Can Play A Crucial Role In Your Year-end Closing
Learn what Oracle NetSuite ERP Can Offer; Source: NetSuite YouTube
A fully-featured cloud ERP software like Oracle NetSuite offers a robust set of features and functionalities that can support your finance team in bringing about a successful year-end closing for your SME.
Here are some ways it can assist in this process:
Robust Financial Reporting Features
NetSuite Financial Reporting Overview; Source: NetSuite YouTube
A cloud ERP software like Oracle NetSuite offers robust reporting capabilities, and comes with the templates you need to generate financial statements, balance sheets, income statements, and cash flow statements.
This greatly simplifies the creation of reports for your year-end financial closing process.
Unification And Consolidation Of Data
However, any accounting software can do the same thing. Where a cloud ERP software truly shines is in its ability to centralise and consolidate financial data from across your entire business. This ensures that all relevant financial information is available for your year-end closing processes.
This includes other types of data that has an effect on the financials of your SME. For example, a cloud ERP software like NetSuite also tracks inventory levels in your business; essential for determining the cost of goods sold accurately, and reflecting their value accordingly in the financial data used for the closing process.
Enables Collaborative Budgeting And Forecasting
Scenario Planning Feature In NSPB; Source: NetSuite Planning & Budgeting (NSPB) - Team Asia
The way that a cloud ERP software like Oracle NetSuite unifies data across your SME also ensures version control of the documents involved in your planning, budgeting and forecasting (PB&F) process. This ensures that your finance team is working from a single source of truth, when they’re carrying out PB&F for your business in anticipation of a recession.
Cloud ERP software can also integrate easily with external, dedicated PB&F solutions to greater effect. In the case of NetSuite, it serves as a central database from which NetSuite Planning & Budgeting (NSPB) draws and leverages data, using features such as scenario modelling and analysis, and predictive analytics.
This helps your finance team generate actionable insights that are invaluable in informing your decision-making, especially when it comes to steering your business around the treacherous waters of an impending recession.
The Right Cloud ERP Software Can Help Your SME Prepare For Challenging Conditions Ahead
In the face of an economic downturn and even a possible recession, the necessity of conducting a year-end financial closing process is more apparent than ever. It’s how you can assess the cash flow of your SME, extrapolate from it the overall financial health of your business, and prepare for an uncertain future through the PB&F process.
A cloud ERP software like Oracle NetSuite can prove to be an invaluable tool in this regard. Not only does it optimise your financial management and keeps your up-to-date with the financial transactions occurring in your SME, it also unifies your data to provide you with a single source of truth in real-time, and can integrate with dedicated PB&F solutions such as NSPB to help you strategise for tough economic conditions ahead.
To find out how else a true cloud ERP software like NetSuite can help you and your finance team get better visibility into your business's financial performance for the year-end closing process (amongst other reporting needs), click on the image below to learn more.