In our 2020 Budget/Forecast, none of us included the headline: Execute the COVID-19 Plan. We are now all faced with this new reality and the challenges that it brings to implementing those items, which were actually headlines in our 2020 Budget/Forecast.
As a finance professional, I find that it all comes down to knowing which levers and dials you can use during times of extraordinary growth when the business is on a downward spiral. Those times when you are thrown a curveball, and your business is in a downward spiral. Most businesses fall somewhere between these two extremes. In 2020, many companies are dealing with the latter situation and looking to stabilize their business. These tips can be applied to many business operations. They should always be ready for implementation.
How to identify fixed vs variable costs
Fixed costs are those costs that are locked into an agreement and cannot be canceled until the term of the deal is over or require payment of an exit charge to terminate. Variable costs can be completely at the discretion of the buyer. You can pay as you go or only notify the vendor if you want to stop. Focus on variable costs in times of crisis when quick maneuvering is required. These are the costs that, over the short term (defined by the company), will not impact your clients or customers on a long-term basis. Changes to variable costs can be made quickly and with little cost or disruption. Please work with your departments on a regular basis to identify these variable costs, their ranking in each department, and finally, within the organization.
Payroll Expenses
Payroll can be a major expense for a business. Unfortunately, companies are often forced to reduce their workforce when the going gets tough. Even in this situation, companies have the option to be creative. Some companies can limit employee work hours to three or four days per week or reduce the number of employees or individuals in certain departments. The hidden benefit of remote work is that it reduces overhead costs in an office. In the short term, there can be cost savings on utilities, cleaning, and furniture. Although it is not ideal, reducing employees’ pay is an option that is still better than being unemployed.
Cut back on non-essential purchases and look for cheaper alternatives.
It is important to consider the entire company when using business consultants, advisors, temporary workers, etc. These relationships get scrutinized when they’re first set up, but not as closely on a regular basis, like the annual sales budget. Are these costs really essential, or have we not looked at them for a while? It’s time to renegotiate the terms. When you are evaluating your options, software should be at the top of your list. Cloud computing and productivity tools are available in many forms. You might be able to save money by moving some aspects of your business into the cloud, or you could invest in software instead of worrying about the headcount request that you lost.
This list should be thought-provoking and help you create your program to understand the financial levers of your business. Like all financial decisions, they cannot be made in a vacuum. The financial decisions should be made in light of the strategic goals and objectives of the business and then incorporated into a financial plan so you can compare your plan to the results that will come over the next few weeks and months.
