With unemployment numbers growing week after week, companies around the country are doing everything they can to remain financially healthy in these uncertain times. While technology solution providers (TSPs) may have seen an uptick in business with the shift to a remote workforce, they are likely feeling the effects of having fewer clients to support or pipelines that are drying up.
What steps can TSPs take now to ensure their businesses remain as financially healthy as possible in the next few weeks? Learn more about the proactive steps to take—and pitfalls to avoid—to help keep your finances healthy.
Avoiding the False Sense of Security Podcast Listen Now >>
Avoid the False Sense of Security
If you’re one of the many businesses that took advantage of the financial assistance from the Paycheck Protection Program (PPP), you may not yet be feeling the full financial impact. Your current financial losses may be stemming from a loss of project and product revenue, which are usually one-time financial losses and felt more immediately. Also, unless you were supporting vertical industries that were hit hard immediately, you haven’t yet realized the true impact to your monthly recurring revenue (MRR). This minimal financial impact may be giving you a false sense of security.
In addition, there is potential for revenue to further decline in June and July once the PPP funding runs out and you don’t have those funds available to cover your expenses. Also, even when your clients start to return back to work, there’s the possibility for ‘yo-yo-ing’ where businesses may open back up only to close down again, which can lead to even more difficulties in projecting revenue accurately.
But it’s not just TSPs that are potentially having a false sense of security. Your customers may also not be fully experiencing all the financial impact. They may be forced to make upcoming reductions in force, which for you means additional agents going offline in the coming months.
According to a recent post from Jay McBain, Principal Analyst - Channel Partnerships & Alliances at Forrester, anywhere from 10% to 25% of the channel will suffer unrecoverable financial distress because of the impacts of COVID-19.
Because of the potential financial distress to hit in the months ahead, now is the time to make plans to conserve cash and base decisions off the real numbers you are seeing. The PPP funding can make a business seem like it’s not as affected by the circumstances of the last two months, so ensure you’re making decisions accurately based on uninflated income. Avoid getting lulled into a false sense of comfort and ensure your team has done the prep work needed to be ready.
Preserve Cash Flow
When it comes to determining the amount of income your business can expect, it’s important to know the difference between accounts receivable and the amount of cash you have. Customers’ ability to pay over the upcoming months is going to get tighter and tighter, so make sure you’re making decisions based on your cash flow instead of expectations. Your revenue is going to be the biggest variable in your financial forecasting, so do what you can to predict based on what you know. Begin to track your cash on a daily basis so you can evaluate the true health of your business.
In addition, understand your cash burn rate, which is the amount of cash you spend every month. As your revenue starts to slow down, pay attention to how your cash levels are decreasing.
Now is the time to lead with a sense of deliberateness and preparedness. Before your loss of revenue is too great, start determining what expenses should be cut based on your current cash flow and health. Don’t wait too long to try to free up cash; protect and preserve what you can before your financial health starts to suffer too much.
Also, assess the inventory and fixed assets that may be living on your balance sheet. What are some items in your inventory that can be converted into cash, or items on your balance sheet that you may be able to re-negotiate such as office space or hardware that you may not need in such a large capacity moving forward? Start to make plans now to take advantage of or make changes.
Create a Phased Approach to Take Action
As part of your financial plan, determine a phased approach with certain triggers to help you decide what actions your organization will make based on your financial health. The differentiation between phases will depend on your company’s unique financial status and your own level of risk, so work with your financial team and leadership to determine when to move from one phase to the next, and what each phase should look like.
The first phase could consist of furloughing employees or proposing salary cuts to reduce expenses. Evaluate whether you can temporarily suspend 401k matching and if that would allow you to preserve the cash you need. The second phase could mean a certain percentage of staff reduction (10% to 30% depending on need), with the final stage being the last ditch effort to keep the company financially healthy. All of these measures will depend on your unique financial circumstances.
Get Your Team in Order
Determine who your key stakeholder and decision makers are, and ensure you have someone who can fill in should this individual suddenly become unavailable. What happens if you have only one person available to sign financial paperwork and they have to go into quarantine for two weeks? What if there’s a family emergency and they are suddenly unavailable for an extended period of time? Make plans now to ensure there is at least one backup so you can avoid running into a standstill if they are unexpectedly out of the office.
Start to Think About What to Do Next
While predictions may still be grim over the next few months, there is still a large potential for TSPs right now as they support so many different industries and needs. With the change in the workforce and remote work dynamics, there’s now potential for you to find additional sources of revenue related to security and ensuring all home work environments are as secure as possible. What might have worked for a company in the interim when they needed to act quickly could potentially not be an ideal long-term solution, which would require additional technical support. If you can identify companies that may need this additional support, you can find new sources of revenue.
While no one can tell with certainty what the next few months will hold, one thing is for certain: Businesses that are making plans and taking actions now will weather this storm better than ones who choose to wait and see. Meet with your leadership team, start creating plans, monitor your cash flow, and keep your eye on the ball.
Listen to this podcast to learn important financial factors to consider during COVID-19.