Co-Authored by Aurora Toth, CMO, Chief Outsiders and John Morris, Partner, B2B CFO
We are well past the initial shock that first accompanied the onset of COVID-19, and the ensuing economic downturn. At this point, many CEOs realize that coping strategies need to evolve. So how does a company move forward without increasing financial risk while focusing on future growth?
My colleague, John Morris, a Twin Cities-based Fractional CFO with B2BCFO and I recently talked about how we are counseling our clients on this key topic, particularly in light of the still-uncertain future. John offered up five immediate actions CEOs of mid-sized companies should be taking to ensure their companies are set up for financial success.
Many companies have already assessed cash flow but it’s worth reiterating. You need to conserve cash and you need to grow cash. Per John, it’s a “back to the basics mentality.” Understand where you are today and what you’ll need in the future. It doesn’t mean you’ll cut everything or lay off your workforce. To that end, you do need to forecast the year but John strongly advises adding 13-week cash flow forecasting, updated every week. Thirteen-week cash flow forecasting helps to quickly focus your leadership team on immediate, concrete needs and potential issues, allowing the team to problem solve and plan proactively.
If you are bleeding cash you must prioritize where it goes. Some companies knee-jerk and slash budgets, or worse, don’t cut enough out of their budgets, without first taking a good hard look at their financial situation. Any of these reflexive actions may end up hurting organizations in the long run. According to John, in reality there are very few true fixed costs. The good news is, you can fix this situation. Ask yourself, “What are the must haves to run the business vs. the nice-to-haves?” Rent and payroll are natural must-have priorities. As a rule of thumb, if you do regular scenario planning in good times, chances are you won’t have a difficult time with this exercise during tough times.
Now is a good time to revisit your business model. Is it meeting the current needs of your customers or have their needs shifted? Is that shift permanent or temporary? How do you know? John and I agree the best way to find out is to pick up the phone and ask them. Are you able to alter any part of your business to be able to better serve customers during the pandemic and resulting economic downturn? If you have done so, is it working, and should you consider making it permanent? If you haven’t yet shifted any part of your business model, ask yourself what you might do. The goal is to pivot your business/service in a new direction that addresses a real need in the marketplace. The upside of the pandemic work environment is the opportunity to try something new and see if it resonates with customers – there’s a lot of room for improvement and others are much more willing to try new approaches now than in the past. As you build your business scenarios, remember to review your pricing strategy as there are significant cash flow implications if margins are impacted.
Do you have a competitor that you know complements your existing business? Or one that would allow you to almost double in size? How are they doing during the economic downturn? This may be an opportunity to acquire them for less than a “normal times” market value and further recession-proof your business. It’s also a simple best practice to regularly study your competition, ensuring that your product or service remains competitive. It should never just be about price. According to a recent McKinsey article: “Forward-thinking companies find more creative ways to meet customer needs than simply dropping the price.” If you haven’t completed a comprehensive competitive review in the past two years, and you find yourself only answering “how are we better?” with, “we’re cheaper,” now is the time to make it a priority!
Is your sales organization aligned to your business model and marketing strategy? Do you have a true marketing strategy or are you focused solely on lead generation? Is your sales team focused on the right clients? How are they incented? Are you measuring your marketing efforts? If not, how? These are crucial questions to spend time on now. Basic steps such as measuring lead velocity rates and conversion rates for your sales organization, for your website/digital marketing (if applicable) and measuring the value of your customers helps to prioritize while driving efficiencies. These actions result in greater revenue generation leading to growth.
A business downturn doesn’t have to result in lagging sales, layoffs or business failures. A little planning and thought can pay big dividends in spurring revenue growth in both the short term and beyond.
About our Authors
See below for Aurora's bio.
John Morris is a partner with B2B CFO® helping business owners realize their goals by creating strategies and business processes to enhance profitability and leverage capital; ultimately helping a number of business owners to profitably exit their businesses. More information at JohnMorrisCFO.com