CXO Bytes

How financial advisors are recession-proofing the businesses

With the global downturn, market turbulence and the potential of financial instability right upon us, it appears that companies with insufficient resources and planning may get to bear the most brunt with highly unattractive terms. Whether you’re a consultant, digital agency owner, event planner, or freelancer, economic downturns are presenting harmful short- and long-term societal and economic repercussions for everyone. This is even more worrisome for small businesses and startups that survive on a month-to-month basis. By living on the edge already, it’s easy to see why 82% of startups and SMEs fail because of poor cash flow management which eventually leads to business owners reducing their future investments in the business, delaying hiring new employees, and cutting staff hours. Unfortunately, with the recession looming over our heads, these problems will only be exacerbated.

Fortunately, the downturns are no new news, and with strategic preventative measures CFOs can make your business ‘recession-proof’.


Revaluate Business’s Growth Strategic Plan

Here, CFOs will perform a diagnostic review of all functional areas and target the key initiatives for strengthening companies in a slowing or recessionary economy. A bit slow economy can be an attractive time to expand market share especially when competition is retrenching and cutting market share but for many, it turns out to be an unwise decision. That’s where financial advisors step in and carefully examine the water first and then carefully evaluate the tactics for new services or products to ensure the company can safely absorb the negative cash flow generated.


Maintain cash flow forecast and manage liquidity

Cash is king, the statement is well-worn but true, generally many corporations still keep their cash in several legal entities and plan their liquidity on a monthly basis, with a generous cushion. However, in a crisis, establishing a balance between cash and expenses is the right decision, a breakeven point where revenue covers expenses for your business will allow you to forecast the recession’s impact on revenue on all levels. The key is to have a dialed-in cash flow forecast that allows a company to balance AR and AP, improve collection procedures, and identify whether additional financing may be necessary. This will not only aid the success of the company but also help in establishing accurate operating costs, and evaluating the timing of the business’s cash flow. Additionally, it’ll present a good opportunity to examine and trim the unnecessary expenses that the company is carrying.


Streamline capital expenditures

The economic downturn often necessitates quicker decision-making, even if the business itself is moving more slowly. In the additional time, CFOs can spend time improving financial reporting, cost reduction contingency plans and embracing new methods of cost management. This could entail new changes in shifting supply chains, offering services in a new market, or discontinuing product lines. Evolving as the situation demands will surely ensure the survival of your company and position it for future growth.


Protect capital base and take long-term shots

Along with ensuring access to sufficient working capital in case of slow down in customer collection, CFOs will tend to prefer longer-term capital as short-term can turn out to be a bit unreliable.


Invest in automation

According to a study, in order to tide over recessions, companies are leveraging automation due to the limitations that come along with manually-driven services. Without adding more operational costs, automation can help save businesses money and recession-proof their operations without lowering customer experience. AR processes like Invoicing, cash application, and deductions management can be easily automated using robotic process automation (RPA) and artificial intelligence (AI) technologies.


Seizing the opportunity

The unusual breadth and depth of the present crisis are forcing companies to adapt more radically than many now expect. But, once a business increases its financial visibility and identifies the internal and external factors that are affecting it the most, the business can be prepared to analyze and adjust for future growth accordingly. As cash will always remain the king, so to make sure that businesses stay recession-proof, all strategies, revelation and decisions must be geared to preserve it while companies make conscious trade-offs to achieve their longer-term strategic objectives.


(The author is Mr. CA Jitendra Jain, Director, TapanshiFinanziell Pvt Ltd and the views expressed in this article are his own)


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