From the CEO Cost Control Navigating Uncertainty

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

By Naveen Singh, CEO Center on March, 24 2020
wiping a laptop clean

No one knows how long the coronavirus pandemic will impact the economy.

Here are four things you can do today to stay strong fiscally.

When I want to get a sense of what’s happening around the company, all I have to do is glance around the office kitchen while making morning coffee. Leftover pizza and a few empty beer bottles? Late-night rush to finish an engineering sprint. Fresh box of doughnuts on the counter? Sales team in town.

 

Last week, before we moved to working remotely, it was three bottles of Lysol spray, two new bottles of hand soap, and a container of disinfecting wipes clustered around the sink, while the new tub of Red Vines from Costco remained untouched. Amidst vigorous hand washing and questions about how clean the fridge handles were, COVID-19  was THE topic of conversation for our Bellevue, WA-based employees, as we all tried to understand the severity of the risks and what to do to keep safe. 

 

During a time like this, planning for the safety of customers and employees must be the first priority for companies. Like us, you have probably made and communicated plans around working remotely, limiting unnecessary travel, checking in with teammates regularly, and adjusting sick day policies. 

 

Once you’ve taken those critical steps to protect your employees’ well-being, you should turn your attention to your company’s financial health. Having a clear picture of where you stand financially and taking your company’s financial pulse on a regular basis will help ensure your team can respond quickly to the spikes and drops that happen in uncertain economic times. 

  

Three critical metrics my finance team and I monitor are:

1. Top-line revenue: How is the sales team tracking to goals, and where can we help?
2. Actual operating expenses: What spend is essential, and how can we improve productivity?
3. Cash burn rate: How might different scenarios affect our company, and where does it make the most sense to invest? 

Normally, we might assess each of these items on a bi-weekly or monthly basis, but lately we’ve increased the cadence to weekly and daily in some cases.

 

I’m not going to go into detail about tracking revenue here because the tools and methods for monitoring and forecasting revenue vary widely across different businesses and industries (my favorite tool is Clari). The techniques for managing operating expenses, on the other hand, tend to be similar no matter what business you’re in. 

 

Here are the four steps we’re taking:

1. Budget Review

We’ve reviewed our budget line by line. Our goal is to optimize every spend decision so we can trim back lower priority spend and continue to invest in activity that drives revenue. 

Tip:

  • When reviewing your budget, look for signs of what our controller calls “spending inertia,” long-term contracts or recurring subscriptions that tend to get automatically reviewed without much discussion about the value. Can those contracts be renegotiated? Can you consolidate or even cancel unnecessary subscriptions?

 

2. Scenario Modeling

We’re looking at how three different scenarios impact our burn rate and still let us invest for growth. The long-term business impacts of the coronavirus pandemic are unknown, so it will be important to review these models with the actual data we collect in the coming weeks to assess whether the assumptions are still valid or need adjusting. 

Tip:

  • You don’t have to wait for the end of the month to review results. Real-time visibility into spend data makes it far easier to make changes on the fly.  

 

3. Identifying Opportunity

As we review the budget, we’re looking for two types of opportunity: places we can either cut back spend or increase productivity, and places to continue or increase investment.

Tips:

  • Don’t cut across the board. In tough economic times, some businesses issue directives to cut 5% company-wide, without considering the impact to revenue-generating activity in the short term, or the need to invest for growth in the long term. Analyze your spend data and budget to cut strategically.
  • Include your management team in the process. They’ll know best where they can trim back or postpone projects, and their involvement will build critical buy-in to carry out difficult choices. 
  • Think about your travel budget. Typically, this is the first place CFOs go to trim costs. In this situation, with so many companies making the decision to stop unnecessary travel, you might find a short-term surplus that can counteract more drastic cost-cutting measures or be reallocated to timely investments like video conferencing.

 

4. Monitoring Spend in Real Time

There’s enough uncertainty in the world today, so we’re countering that uncertainty from a business perspective by tracking real-time information about spend across the company.

Tips:

  • As you review spend, consider making short-term policy adjustments, such as dialing back employee meals if everyone is working from home while increasing allotments for cell-phone reimbursements and employee morale. Expense data will identify when individual employees need additional coaching around the goals.
  • If warranted, conserve credit and minimize risk by reducing some employees’ corporate card limits or locking cards that aren’t in regular use.

 

During good times, it feels easier to maintain the status quo, but economic uncertainty is a forcing mechanism that presents the opportunity to review your company’s entire financial infrastructure. The work is difficult, but it can yield benefits in the long run. 

 

The COVID-19 pandemic is a public health crisis that requires all of us to take immediate action, starting with ensuring the safety of our families, employees, customers, and communities. As the CEO of a growing business, I feel a deep responsibility to my team and the customers who depend upon them. 

 

While I’m staying in touch with everyone via Zoom, Slack, and email, I’m focused on monitoring the financial health of the business so that when we return to normal sometime in the next few weeks or months, we can be stronger than ever. I look forward to the day we all share doughnuts and pizza around a conference room again. In the meantime, I wish everyone continued health.

 

Naveen Singh is CEO of Center. This post is the first in our series Navigating Uncertainty. Read the next post, Advice from CEOs on Navigating an Economic Downturn here.

And for more on how Center can help, click here.

 

 

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