Finance
March 25, 2020

Business Continuity - Make sure your finance team can respond to the coming fire.

Written by
Tushar Makhija
Tushar Makhija
Business Continuity - Make sure your finance team can respond to the coming fire.

It’s widely observed that in the 1906 San Francisco earthquake, most of the damage was done by the fire that followed, not by the devastating quake itself. Today’s pandemic-sourced seismic jolt has been felt worldwide with the closure of all non-essential businesses, the collapse of the stock market, imposition of social distancing and shelter-in-place regulations. Companies have little time now to prepare for the coming ‘fire’ that is surely to follow the COVID-19 ‘earthquake’. 

We know that what follows will disproportionately impact certain areas of the economy; travel, hospitality, tourism, restaurants, and small, shop-front businesses. Still, the realities of a recession, soaring unemployment, fewer investment dollars, and a slowdown or freeze on spending, by both businesses and consumers, will put tremendous strain on all companies.

As businesses move swiftly to assess and respond to new emerging realities, many of the inadequacies of their internal processes are being revealed. Notably, the amount of effort that it takes finance teams to get their arms around reliable company numbers outside of month-end close. In addition to this problem, it is clear that some finance teams lack the oversight and control to effectively manage finances.

The heightened need to move to real-time aggregation and reporting of all revenue and expenses is surely important during times of great stress, and it also improves decision making in all economic cycles. 

Investing in critical initiatives.

It makes sense for companies to move quickly to integrate and automate more of their processes so that finance teams are better armed to get real-time, actionable data to management. The loss of productivity due to inefficient processes is a cost that companies will feel more acutely in the coming quarters. 

Creating the right model for calculating those costs can be helpful, as key decisions must be made about where to save working capital. Best practice focuses on funding critical initiatives while cutting costs associated with low productive efforts. Right now, gaining real-time visibility into company revenue and expense may well be considered by small and medium size companies to be a critical initiative.    

How prepared are you? 

If you are scrambling to make sense of your business in this current environment, you are not alone. In a March 6 webinar, held by Gartner on Business Continuity planning, the following was noted:

  • Just 12% of more than 1,500 people polled in a Gartner business continuity webinar on March 6 believe their businesses are highly prepared for the impact of coronavirus, while 26% believe that the virus will have little or no impact on their business.
  • Most respondents (56%) rate themselves somewhat prepared, and 11% said they were either relatively or very unprepared. Just 2% of respondents believe their business can continue as normal, highlighting the huge range of businesses that could be affected by the outbreak.
  • Twenty-four percent of respondents expect little disruption, while the majority expect business to continue at a reduced pace (57%), to be severely restricted (16%) or to be discontinued altogether (1%).

As the crisis has advanced in recent weeks we would expect to see these numbers adjust to reflect a sense of greater impact and less preparedness, especially as employees grapple with having full-time care requirements for children, as well as the prospect that they themselves or their families may fall ill. 

Surviving disaster with good information and efficient processes.

Business continuity planning, which is the process by which companies assess, and plan for survival in a disaster, is helpful but it misses an opportunity to look beyond backup plans and communication protocols. Given the slower moving nature of this disaster, it does offer an opportunity to think more broadly about responses that include making improvements to a company’s current processes. 

In times of uncertainty, the need for managing risk is much greater, as is the need for continually updating models, as conditions change and more information becomes available. The capacity to provide additional, updated company financial information, while still meeting all of the other normal output required of finance teams, creates a challenge for existing resources and can also lead to errors in reporting. It is therefore important to drive toward operational efficiency as a way to do more with less. 

Ready to get efficient but not sure where to focus?

Finding meaningful areas for creating efficiencies is essential because companies need their actions to have real impact at this time, and “indirect spend” is one very large area for seeking improvement. Spend management is often overlooked or avoided because of its complexity. The process involves spending by most employees, approvals by management, payments execution, accounting, and reporting. Tackling something that is spread company-wide may seem difficult but it doesn’t have to be. It’s estimated that indirect spend – which includes areas such as outside contractors, IT, capital equipment, temporary labor, employee benefits, T&E, and telecommunications – is between 15% and 30% of revenue.

In its “You're Missing the Point %”  2014 article, Accenture publishes indirect spend as a percent of revenue for the following business categories: 

Consumer products 26.9%
Manufacturing 19.4%
Services 14.9%
Retail 20.6%
Pharma & Life Sciences 24.8%
High Tech 27.0%

Taking direct aim at “indirect spend” in this current environment is a smart way to prepare for the fire to come; it’s like creating a barrier around your company, clearing out the dead wood and unnecessary underbrush. 

5 things you can do today.

Finance teams are essential players to analyze and plan for continued operations during and after the economic fallout from coronavirus. Here are 5 things you can do today to make sure that your team is optimizing their performance at this critical time: 

  1. Give your team the best tools for analysis, oversight, and reporting.
  2. Provide clear decision-making authority over all company spending. 
  3. Make sure that oversight and controls are in place to manage all spending against approved budgets as it occurs.   
  4. Automate processes wherever possible to free up resources that are doing manual tasks so that they can be deployed on more strategic, analytic work. 
  5. Invest in access to real-time data so that decision-makers have an up-to-the-minute view of your company’s financial condition. 

Stay safe, be smart, and emerge stronger.