Navigating Through an Economic Downturn

Companies that operate well through this downturn may be able to leapfrog competitors. Here are three steps to take now.

A version of this article, titled “3 Steps to Manage Your Company During Economic Uncertainty” was originally published in Accounting Today.

The global Covid-19 pandemic is affecting every business differently, but there is no question that it is affecting every business. It’s difficult to project how long it will last, or how deep the impact will be. Some companies are mobilizing to meet increased demand or pivoting their business models to better serve the changing needs of their customers. Others are facing much more difficult scenarios as their revenue streams evaporate. These challenges are exacerbated by the speed at which conditions are changing—businesses must adapt rapidly. The time for decisive action is now. Companies that operate well through this downturn may be able to leapfrog competitors.

Clearly, the safety of stakeholders (employees, suppliers, customers, community, etc) is of paramount importance, and businesses must take all steps necessary to ensure their protection. The next step is to reassess your company’s financial health and create a clear action plan that reduces risk and fortifies your business for the long term.

1. Align Leadership

Always crucial, but especially in times of rapid change. All areas of the business require strong leadership rowing in the same direction. Leading in a down cycle is different from leading when everything is up and to the right.

2. Perform a Strategic Review

Your business has changed. Assess the degree to which the macro operating environment has been altered and understand how power dynamics may have shifted within your industry. Are these changes incremental or fundamental? Long-term or short-term? Can you deliver the same value prop given the new environment and your established resource capabilities? Ultimately, what strategic changes are required in order to best meet organizational & financial goals? You don’t have perfect information, and historical models may be invalid. These are difficult, but unavoidable, questions.

3. Strengthen Your S&OP Process

Use the Strategic Review to guide your Sales & Ops Planning. This is likely already a core part of your business management routine, but now is an opportunity to increase cadence with a time horizon that reflects today’s uncertainty. Translate your strategy into a detailed operational plan that meshes new P&L expectations and balance sheet supports/restrictions:

• Revenue: Recognize demand changes and secure your customer base through product/service changes. Rethink how flexible you can be for your customers. Closely monitor individual project ROI, and prioritize those that can produce in the near term. Where should we be increasing investment to meet new opportunities?
• Optimize for Productivity: Every dollar spent is an investment in your future. Perform a detailed spend analysis:
  • Stay Nimble – Avoid “spend inertia” by scrutinizing repetitive and semi-variable expenses, sole-supplier situations, monthly subscriptions, etc.
  • Increase Productivity – Flush out inefficiencies by streamlining manual processes and leveraging systems/automation for labor-intensive, routine tasks.
  • Involve Everyone – Enlist all employees in a collaborative effort to identify cost savings/deferrals and stabilize the top line. Drive commitment and follow-through.
• Strengthen Working Capital: Focus on what can be done now to reduce immediate risks. Extend payables? Increase cash cushion? Reduce inventories? Collect receivables faster? Improve credit terms?
• Sensitivity Scenarios: Run multiple scenarios to not only determine the best path, but prepare for inevitable future adjustments.

Once you have established a new Operating Plan that’s consistent with your strategic goals, communicate the plan widely—and update and roll it out as needed (frequently, in times like these). Operational execution and measurement is crucial. With most teams now working remotely, it’s critical to monitor spend as it happens with live analytics. In uncertain times like these waiting for the month-end is not good enough.

Clearly, this outline only scratches the surface of these topics. Nevertheless, I hope this helps in planning how your business will weather this period of uncertainty and position it for success once the crisis has passed. Our goal at Center is to help businesses make better decisions by providing visibility and control over every dollar spent. We’ve gathered additional resources for finance professionals here. For more information about how Center can help you control costs and monitor real-time spend, please set up a demo with our sales team.

Brian Maslen is Center’s corporate controller. 

This post is part of our series on Navigating Uncertainty. Other posts include:

Four Ways to Protect Your Company’s (Financial) Health

Advice from CEOs on Navigating an Economic Downturn

How To Smooth the Monthly Close for Remote Work (and Beyond)