We have experienced many years of consistent economic growth and suddenly in early 2020 we started experiencing a major “Covid” downturn. Many businesses will therefore be reactive rather than proactive. Many businesses have seen previous downturns but THIS ONE IS DIFFERENT!
Consumer behavior is not as predictable as it was years ago. Because of the internet, power has very quickly moved from the seller to the buyer. Consumers are smarter and their wants and needs have changed. What does this mean? Buyers have three choices:
Trade down to basic, less expensive, products and services; or
Buy less often; or
Look at products and services and decide which ones are considered to have real value.
So in this environment, what do businesses need to do now?
Make sure your Quickbooks or other accounting software is set up correctly;
Evaluate and make adjustments to your payroll processing if necessary;
Review budgets and set realistic goals and targets for 2020 and 2021;
Get rid of “can’t pay/won’t pay customers;
Review accounts receivable and set up a system to consistently follow up on delinquent accounts;
Offer extended payment terms or discounts for very prompt payment;
Make sure your contracts and invoices contain explicit payment terms;
Assign responsibility to one individual for invoicing and collections;
Agree on extended payment terms with your suppliers in advance;
Maintain a dialogue with your bank, even if you don’t need financing now;
Put extra effort into making sure relationships with your key customers are solid;
Review and flow chart the main processes in your businesses such as sales processing, order fulfillment, shipping and accounting and challenge the need for each step and each report.
Additionally, you may want to incentivize team members to suggest ways to simplify processes and save money, use “bottom up” budgeting where everyone in the office gives input on areas over which they have control, review your staffing needs for the next 12 months and make necessary cuts now. Get your team members involved in discussing how to boost revenues, including offering new products and services. Review your list of products and services and eliminate those that are unprofitable or are not part of your core competency.
Define your key performance indicators (KPI’s) and measure them on a daily or weekly basis – sales per square foot, sales per $ of labor costs, gross profit %, number of transactions per customer, average sale amount, number of sales phone calls made, number of merchandise returns, number of complaints received, etc.
Review the efficiency of your office processes and consider possible alternatives such as outsourcing. Meet with your team regularly, discuss your firm’s strategy and be open minded about what is going on. Celebrate victories – even small ones !
For robust business planning with a financial perspective, or if you have any questions…call Norm Blieden, CPA. (626) 440-9511. Or visit bliedencpa.com for a complete list of services and other important accounting and financially focused insights.