By Dave Woolliscroft and Dan Ghammachi on June 22, 2020
The impact of COVID-19 has been a shock to the system and we don’t yet know how great the impact to the economy will be. What we do know is that it’s unlikely to be short-lived.
We are dealing with a new normal for the foreseeable future, and as finance leaders we must be prepared. Some B2B software companies will be impacted more than others, depending on your customers’ industries and your company’s relative health going into this situation.
In these circumstances it can be difficult to know what to do. Following are six things we are focused on with our portfolio companies, and we recommend you prioritize them as well.
1. Assess your downside
Your current financial plan is out the window. You need to understand the potential impact on your business to be ready for downside eventualities. Some possibilities to consider in your scenario plans include reduced bookings, higher churn, extended implementations, delayed renewals and extended collection cycles. Assess aggressive downside scenarios for these drivers and consider what levers you have to reduce cash outflows.
It’s important that you can continue operating with your available cash. There’s no way to predict how long this will last or how much financing will be available from traditional credit markets. Depending on the outcome of your scenario planning, actions to consider could include:
- Cutting all nonessential spend
- Freezing nonessential new hires
- Assigning at least one person to renegotiate all your contracts (rent, contractors, other vendors)
- Setting targets for teams to reduce spend — every department should play a role
- Eliminating any spend without a clear ROI (nonessential projects)
2. Actively manage collections
Collections may have worked on autopilot before, but it’s time to actively engage with your customers.
- Be proactive on invoices that are coming due. Offer discounts for early or prompt payment.
- Talk with your customers to stay top of mind as they consider who to pay. Dedicate a resource who is responsible for making these calls.
- If you typically collect via credit cards, don’t assume you are immune. Keep an eye on credit card rejections and follow up promptly as they occur. Collect backup credit card info if your system allows, in case the first credit card fails.
- Review your dunning process and incorporate usage data into your assessment of a customer’s likelihood to pay.
- Don’t treat all customers the same. Not all industries are struggling in the same way, so be mindful of identifying customers who legitimately need relief.
- Introduce a ‘deal desk’ to review customer requests for assistance. Consider the long-term value of the customer and how it can be increased with immediate relief.
3. Work with your vendors and partners
By this point you’ve likely paused your discretionary spend, so shift your attention to essential spending.
- Now is the time to renegotiate existing contracts. Seek discounts on what you currently pay. If that’s not possible, at least secure extended payment terms or split large annual bills into smaller monthly or quarterly payments. Find the right person at each vendor to engage with – ideally a champion who will fight the battle internally on your behalf.
- You likely aren’t using your office space as people continue to work from home. Talk to your landlords about rent abatement or deferrals, possibly with an extension of your lease in return. Relief for parking fees, service charges and CAM fees should be no-brainers.
- Talk to your benefit providers about extending payment terms without impacting much-needed benefits for and your employees.
- Institute a program to gather ideas from your staff on where cost savings can be achieved with simple rewards provided for the best and actionable ideas.
- Be mindful of partners with whom you have a symbiotic relationship. If you rely on a consulting partner for the services to deliver your implementation, ensure they are financially healthy and understand what you can do to help them.
The key point is to communicate with vendors and partners. Don’t simply go quiet and not pay. Communication will achieve better outcomes.
4. Keep abreast of changes in government assistance programs
Government assistance programs have been changing quickly. Seek counsel from advisors such as lawyers, accountants and tax accountants. Be confident in your eligibility before applying to any program; know what you are asserting to and the rules you will have to comply with. There could be legal, financial and brand penalties for improper disclosures.
5. Take care of your team
For finance leaders, dealing with the survival of your businesses can be all-consuming. Take time to consider the impact of work-from-home situations and the personal pressures the pandemic can have on your team. Small things can make a difference.
- Introduce daily stand-ups at the beginning of each day to ensure team alignment.
- Reach out to your team proactively.
- If you aren’t already, use video for all meetings.
- Be steadfast in protecting the 1:1s on your calendar.
- Start each discussion with a personal check-in or inquire about family member.
- Schedule communal lunches or happy hours and encourage family members to join you.
Adversity can build stronger team bonds. Don’t let this opportunity go to waste.
6. Stay vigilant
Certain people are ready to take advantage of bad times as well as good. With the added irregularity of remote working arrangements comes an increased opportunity for fraud and other attacks.
- Beware of phishing. Ensure that your teams are trained to identify malicious or fraudulent emails and phone calls.
- Monitor your bank accounts for suspicious activity and notify your bank if you spot something.
- Ensure that checks being sent to unoccupied offices are collected or safeguarded.
Summary
Change is likely to continue and uncertainty can be stressful, but taking action often provides some measure of comfort.
In summary, remember these simple principles.
- Prepare for the worst but have a realistic view of the future.
- Hoard your cash.
- Communicate, communicate, communicate – with customers, vendors, partners and your team.
About the Authors
Dan Ghammachi, Managing Director, K1 Operations
Dan Ghammachi is a Managing Director at K1 Operations. He leads reporting and accounting diligence for new investments and is an active board member for K1’s portfolio companies and advisor to K1’s management teams.
Previously, Mr. Ghammachi was CEO of Media Solutions Holdings where he focused on growth and operating efficiency. Mr. Ghammachi previously worked at Aerosoles where he focused on cash management and risk management and International Commerce Exchange Systems where he supported over two dozen business units. Mr. Ghammachi also held the position of Director of Finance at Applied Printing Technology. Mr. Ghammachi is a graduate of Rutgers University, where he received an MBA, and of Montclair State University, where he received a BS in Accounting.
Dave Woolliscroft, Practice Director, K1 Operations
Dave Woolliscroft leads reporting and finance best practices across the K1 portfolio, partnering with CFOs and finance teams to help them meet the needs of their rapidly growing business.
Previously, Dave was a Managing Director at Deloitte, where he was CFO and COO of various recurring revenue subsidiary businesses and a co-founder of their internal venture accelerator. Prior to that, Dave led finance strategy and finance transformation initiatives for Deloitte Consulting at a number of CPG, healthcare and PE backed companies. Earlier in his career, Dave was a Senior Finance Manager at Barclays Bank and Snr financial analyst at Ford Motor Company.
More Resources:
4 Keys to Keeping Your Team (and Customers) Safe During the COVID-19 Pandemic
How to Bounce Back Fast: 7 Ways to Manage Your Practice During a Pandemic
Webinar Recap: Recruit the Best Candidates in a Remote World
