In unknown and potentially turbulent financial times, proper planning, robust stress testing and rapid, proactive responses are more important than ever for business success. But so, too, is keeping in perspective that whatever challenge you face will eventually pass, believes Nayan V Kisnadwala, CEO of high-end automotive finance provider JBR Capital. “It does not do to leave a live dragon out of your calculations if you live near one,” surmised J.R.R. Tolkien in his novel The Hobbit. Illustrations of dragons were also, of course, drawn on maps in medieval times to warn of dangerous and unknown territories.
No one can see what is ahead of them, but I am sure it used to be easier to plan for the future.
Early in my career, when we were making business plans we would compile three-year plans. And by and large, we could stick them for the duration.
But life was a little simpler back then. The macroeconomic climate was a lot more stable. Plus, it helped that we knew where most of the dragons lived in those days.
The world’s not like that now. These days it’s a brave financier who makes a twelve-month plan and believes it will not need to be modified. Even a four-week plan could be pushing it at times.
“Intelligence-based plans are still essential, of course. But they count for nothing if they are not backed up by constant vigilance and the ability to take rapid, measured, and effective proactive action.”
Because these days, the dragons are both numerous and of no-fixed abode. We need to be nimble and flexible.
The 2008 global recession, Brexit, and the pandemic – events that would, in isolation, have been previously considered ‘once in a lifetime,’ seem to occur now with worrying frequency. While these seismic events have left once rock-steady institutions reeling and changed the face of entire industries, the aftershocks are growing a little weaker and less frequent as we return to ‘normality,’ or at least try to fashion a ‘new normality.’
So why, as some of these momentous events begin to recede in the rear-view mirror, is it still so challenging to forecast future financial performance?
At the moment, you can finish reading your daily newspaper feeling slightly buoyed by the: ‘Britain to avoid recession’ headline, only to be pinged back into gloom as your smartphone delivers a ‘UK retail sales plummet’ news alert.
As we all know, much of the economic turbulence is due to the war in Ukraine. This unmitigated human disaster causes a profound yet fluctuating effect on the supply chain. It is also having a similar impact on the geopolitical energy supply. And it is extremely difficult to predict how the world will react to these issues, both now and in the future.
One pleasant surprise is that the US economy has been more robust than expected, which puts less pressure on Europe and the UK economies. This has contributed to preventing the UK from falling off the edge of the cliff we seemed to be teetering on in the autumn.
But of course, in the UK, what really saved the day was quick and assertive action at government level, with the appointment of a new prime minister finally bringing some level of calm to the markets.
During that time, as interest rates increased, we at JBR Capital took swift action to support our customers and protect our business by responding to the market with a new variable-rate loan product.
As a business, you can never know when you will have to do something like this. You only ever know that you may have to do it, and ensure you plan for it appropriately by building in sufficient flexibility to deal with it when it happens.
“Equally, every plan a financial company makes must be thoroughly stress-tested. For us at JBR Capital, that means two things.”
The first is ensuring that the company is hedged against interest rate fluctuations. That means asking ourselves are we matching the cost of funding we borrow from our banks to the rate we charge our customers? Because if there’s a mismatch, then there’s a challenge.
In very simple terms, if the Bank of England base rate goes up, then what we pay the bank goes up, whereas in many cases, what our customers pay us is already fixed. So, we must ensure that we are hedged by buying specific financial instruments to protect the business against interest rate rises. Of course, there is a cost ensued in all of this, but it is one we must pay to ensure the smooth running of the business in turbulent conditions.
Besides, we are managing our credit risks and business costs very proactively too. Imbibing an entrepreneurial sense of ownership with all of our colleagues is very critical. We want to build a resilient workforce.
A proper plan, fortified by the ability to pivot swiftly and act proactively, is vital for dealing with whatever challenges lie ahead.
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