Because of COVID-19, businesses and their accounting departments are going through a cycle of shock (and maybe some denial), survival, learning and adaptation. For those of you who haven’t done so yet, it’s critical to begin the shift into the learning and adaptation phases as quickly as possible so we emerge stronger as a result.
How can businesses and accounting teams emerge more resilient, not only by re-examining our business continuity plans, but also by completely re-imagining our business models and instituting proactive planning?
Here are some steps you should take as you respond and adapt your business to be more resilient:
1. Get your basic risk management blocking and tackling in order. Dust off those old business continuity plans, review your insurance coverage, and revisit whether you have adequate cash reserves and sources of funding needed to weather a prolonged disruption like the COVID-19 pandemic.
2. Embrace, accelerate, and finish your digital transformation journey. Businesses and accounting departments who were early adopters of new technologies like the cloud have come out ahead as a result. Don’t be left behind.
3. Implement the ability to do rudimentary budgeting, ongoing analysis of actual results, continual reforecasting, and what-if scenario modeling. Businesses today who once reforecast four times a year have done it 10 to 20 times in the past few months. They will be the ones most prepared for whatever comes next.
4. Re-examine your business models and supply chains to create multiple, redundant channels to deliver your products and services. Organizations with flexibility in their supply chains, and the ability to pivot their workforce and product or service delivery models to digital/virtual or other more direct methods (like curbside pickup or delivery for retail and restaurants), have been able to weather the storm. Are there ways to innovate your business model you haven’t thought of yet that the current crisis might highlight?
5. Create recurring revenue wherever you can. Many businesses that are not software-as-a-service, or SaaS, companies have nevertheless found ways to convert their revenue to a subscription-based model. They have enjoyed more stable revenue streams during the crisis than businesses with a more transactional model.
First, the basic blocking and tackling
The strength and length of the recent 10-year economic boom has lulled some businesses into complacency, causing them to take their eye off the ball when it comes to basic risk management practices and business continuity planning. Have all your risks been identified and their likelihood and potential impact quantified? Have you purchased insurance for all the risks that are insurable at a reasonable cost? Do you have a short-term disaster recovery plan for things like destruction of your primary data center, and a longer-term business continuity plan for continuing operations during more extended business disruptions? And have you considered what external indicators you need to monitor so you know when you need to trigger these plans?
Having adequate cash reserves and sources of credit or funding from banks and investors is a key fundamental risk management strategy. Ask any business that recently folded because they ran out of cash, or had their bank take the opportunity to lower their credit limits or completely close unused credit facilities.
Digital transformation
Accounting departments, traditionally seen as more conservative and risk-averse, rather than as drivers of transformation, need to become catalysts and agents of change in the digital era. Many of the critical accounting processes that are vulnerable to crises like the COVID-19 pandemic, such as billing customers and paying vendors and employees, fall within their purview.
COVID-19 has taught accounting professionals that embracing the technological changes brought on by what many are calling the “digital transformation” of the past 20 years is a key to survival.
Take, for example, the area of enterprise software. Businesses and accounting departments that moved to a multi-tenant, cloud-based, customer relationship management system, and a similar accounting and financial management system didn’t have to worry about not having access to a data center. They don’t have a data center. They didn’t have to worry about getting into their offices to access workstations that have critical accounting software running on them, because they can log in from home, or on their phones (or any other device), anytime they need to. And they don’t have to worry about maintaining or updating these applications because it’s done for them by the software publishers. Add to that the ability to create virtual teams by leveraging technologies like Microsoft Teams, Zoom, GoToMeeting and Slack, and you have an accounting workforce that can fall back to working from home on almost a moment’s notice.
There’s something to be said for avoiding the “bleeding edge” of technology, but the COVID-19 experience suggests that being in the late majority or a laggard is not actually the lowest-risk strategy for technology adoption. A strong argument can be made that one should adopt new technologies just as soon as is feasible for the organization.
Companies should also make sure their digital transformation goes the “last mile.” I’ve seen many organizations implement 100 percent cloud-based accounting software applications but still have “pockets of analog” in various places that become stumbling blocks when you need to live in a 100 percent virtual world.
Develop the capability to do what-if scenario modeling
Many organizations have a rudimentary annual budgeting process, while others don’t even achieve that once a year. What COVID-19 has taught us is that we all need some form of ongoing, dynamic financial budgeting, planning, and modeling capability in place. The first and most fundamental component is proactive planning. This means preparing a beginning-of-year budget and measuring the actual performance of the business against that budget on an ongoing basis. But it also means reforecasting the expected business results (usually on at least a quarterly basis) as the business conditions change. Finally, we need the ability to look at different future scenarios to determine what our response will be. For example, what is the best-case scenario? What is the worst case? What is the most likely outcome we should be planning for?
There are several great software applications available in the cloud that can help growing and larger businesses and accounting departments with this type of planning, budgeting and modeling. And the good ones all have the capability to bi-directionally integrate with your accounting system so you can compare your budgeted results to the actual results at a moment’s notice.
COVID-19 has moved this up into the top three initiatives on the list for many organizations. We should all think about making this a priority. Finance and accounting leaders have a real opportunity here to implement capabilities that help them predict the future, or at least position the business to be able to respond more quickly and appropriately in a future that is characterized by more uncertainty and rapid change than ever before.
Re-examine your business model
Shoring up the missing pieces in your risk management and business continuity strategy, embracing the change associated with digital transformation, and implementing a world-class what-if scenario modeling capability may not help you in a crisis like COVID-19 if there are fundamental flaws in your business model that haven’t been addressed. You may need to examine your sources of revenue and identify all the risks that could disrupt your ability to continue providing your products and services to your customers. Having multiple distribution channels for your products and services, especially including virtual capabilities using online, mobile and social platforms, is key.
In addition to evaluating the resilience of distribution channels for products and services, we must also look at our supply chains. For knowledge or service-based businesses, the supply chain largely consists of human capital. Even product-based businesses have experienced the profound impact that a loss of human capital can have on their supply chains during the COVID-19 pandemic.
The impacts of a global pandemic, coupled with a global recession, on the supply chain of product-based businesses have been well-documented. Product-based businesses are undergoing perhaps the most difficult re-evaluation of their supply chains because of the complex, interconnected nature of the global economy. Some things simply cannot be changed very quickly. But building resilience into all supply chains, whether for product-based or service-based businesses, is the name of the game today.
Transitioning to a recurring revenue model
Finally, in addition to evaluating our supply chains and distribution channels for our products and services, businesses should be pursuing strategies to implement recurring revenue models. SaaS companies have been the pioneers of our new subscription economy, but plenty of other industries have found a way to create recurring revenue.
Recurring revenue models are much more resilient in the face of economic downturns than those that are more transactional in nature.
Where do I start?
You can get through a risk assessment and shore up your risk management gaps quickly. And unlike legacy on-premises enterprise system implementations, which frequently took six months to a year or even longer, cloud-based accounting software implementations average about 90 days. Many of the best-in-class cloud point solutions can be implemented much more quickly. Re-assessing and shoring up your supply chains or moving to a recurring revenue model will obviously take more thoughtful planning and time to implement.
Here’s a 120-day plan to get you started:
- Weeks 1 and 2: Perform a gap analysis on your risk management practices (are they documented?) and your progress on the digital transformation journey. Identify opportunities to implement improvements such as updating insurance policies, documenting disaster recovery and business continuity plans, replacing manual and paper-based accounting processes with modern, digital solutions, etc. Prioritize gaps that are causing the most pain or vulnerability, and those that can benefit from quick wins that can be easily and quickly implemented.
- Weeks 3 and 4: Evaluate solutions to fill identified gaps, such as new insurance policies, accounting process automation, and modernization of systems. Technology vendors should be evaluated and selected during this time. Finalize a plan for what actions you are going to take, and which technology vendors and solutions you are going to implement.
- Weeks 5 to 17: Implement solutions that will make your business more modern, more digital, and more resilient by better managing identified risks and being nimbler and more flexible to change. Most small to midsized businesses should be able to achieve this timeline with adequate focus and resources applied. Larger businesses will take longer.
- Weeks 1 to 17: Evaluate supply chains and revenue streams for opportunities to create redundancy, virtual/digital delivery models, and recurring revenue with subscription-based contracts. This part of your journey will take longer and require more thought. And the implementation of any recommended changes could take additional months, if not years. But it’s worth doing if you can.
The most important thing is to fight off any inertia or resistance to change and get started now. Due to COVID-19, digital transformation and proactive planning have gone from optional to urgent.
