3 Action Steps to Make Your Business Resilient in Hard Times

There is no doubt that these are challenging times for most if not all businesses.  In its most basic terms, the COVID-19 outbreak has made it such that customers and employees can’t leave their homes to transact business and as a result revenue is down significantly or totally gone.  The issue is far greater than just the current pandemic lockdown that has us all home for a few months.  No matter when things end, the way we work and live will fundamentally change now and in the future. 

“Things will never be the same.”  It is easy to read this statement and get emotionally triggered into distress and fear.  However, a more analytical and business-oriented view might take it as a statement of fact.  When viewed from this perspective, the next logical conclusion is, “Yes, things will be different, but what can we do about it today, tomorrow, next month, next year, etc.?” 

What follows are three steps you can take to make your business more resilient to the current economic downturn brought about by the COVID-19 pandemic.

1. Put your accounting system into the cloud

First and foremost, it is time to move your accounting system into the cloud.  Technology exists where companies no longer need to have computers and data reside on local computers in offices.  Solutions by Xero, QuickBooks Online, and Sage Intacct, to name a few, provide all the features and functionality of desktop-based software without the hassles of worrying about hardware or software.  With an email address and password, users can access the system from any place where there is internet and a computer running an internet browser, including smart phones or tablets.  You, your employees, and your accountant can securely access the system anytime from anywhere.

Once your accounting solution is in the cloud, this opens up a secondary benefit -- that you can exchange data electronically with other entities and other applications.  For example, the solutions previously mentioned have electronic interfaces to most banks and credit cards.  Clearly this has the personal health benefit of not having to handle paper that may have been exposed to a virus, but the bigger benefit is the data is available in seconds at the click of a button.  The days of having a clerk key punch in accounting data are long gone. With the fast exchange of electronic data, a company should be able to have near real time access to accurate financial data about their business.

And there is a third benefit to being in the cloud: The accounting applications can be connected to other third-party solutions.  There is a whole ecosystem of cloud applications that can be connected to your cloud accounting systems.  These solutions can automate bill payment (Bill.com) employee expense tracking (Expensify), sales transactions (Shopify), payment processing (Square), and sales tax (Avalara).  Additionally most of these apps can connect electronically to your HR/payroll system.  In each case, the interface allows data to flow near real time at minimal cost directly into your general ledger.

It should be noted that some desktop software products have interface capabilities to banks and other third-party applications.  However, these interfaces tend to be separate, standalone programs that need to be maintained on the PC (installed, upgraded, patched, tested, and maintained).  They tend to be more manual in nature, more error prone, and connect to a much more limited set of external entities and applications. There is also an issue that these programs need to be watched from an IT security perspective.   A standalone program sitting in one’s network transmitting data externally is a risk point that needs to be watched.  Alternatively, with cloud applications, there is no software, hardware, or security to concern us.  These things are all maintained by the cloud application provider.

2. Get yourself a budget

A very large percentage of small businesses do not manage themselves with a budget/forecast. In times of economic distress, this can be an exceptionally dangerous way to operate.  This is particularly true of managing cash and credit lines.  Not having an accurate picture of a cash position is analogous to flying an airplane without a fuel gage.  If you have a full tank when you take off, and you are flying a route you always take, the fuel gage is not that critical.  However when things get tough, and you don’t know when you will be able to get fuel next, that gage becomes a big deal.

One might ask if budgets are so important, why so many small businesses operate without one.  The answer probably is related to two simple facts.  First, the key to any budget process is to start with accurate data assembled in a consistent way. This can be very difficult to do, particularly if the source system isn’t accurate (not reconciled often) or stuck in a desktop software (not in the Cloud). Second, putting a budget together is not a trivial undertaking.  Expertise is required to understand the business and determine a mathematical financial model behind the way it operates.  It is a process that requires dedicated time to think, model, and experiment.  Time is not a commodity that many business owners have, nor are they experts in modeling.  Therefore often the budget is never assembled because business owners don’t have the time or expertise to assemble it.

As COVID-19 has clearly demonstrated, when times get hard, really hard, it is absolutely critical that a company have a budget or forecast.  Controlling the inflow and outflow of cash, in particular, is critical to extending the life of a business.  Budgeting, forecasting, and planning are things that your accountant can absolutely be able to assist with, provided they have the requisite experience and expertise with managerial accounting.  As a start they may have enough information about your business from past tax filings to assemble a budget model fairly quickly. The important thing is to get your source data accurate and find someone with expertise to put the budget together.

3. Upgrade your accounting by outsourcing

Having accurate accounting data that can be used for making business decisions requires time, effort, and expertise.   At its most basic level, accounting for a business involves four main activities including capturing the transactions, reconciling the data, performing analysis, and maintaining the accounting technology platform. Advances in cloud accounting technology have definitely made easier to do these tasks.  However, there are two big problems with the ‘do-it-yourself’ approach, mainly time and knowledge.

First, taking care of the daily accounting for a business requires time, sometimes significant amounts of time.  Time is needed to not only capture the data, but also to check the information and make sure it is reconciled with bank accounts.  There are some small business owners and CEOs who take on the task of keeping the books themselves.  This approach can work; sometimes for a very small business it may be the only option due to lack of financial resources to pay someone else to do it.  However, the cost of this might be greater than one thinks due to opportunity costs.  This extra hidden cost is generally born by the company or by the owner’s personal life. Growth opportunities can be missed because the owners focus is not on the real growth areas of a business mainly sales, innovation, and finding the best people.  On the personal front, instead of being with one’s family on nights and weekends, an owner will sit in a home office reconciling accounting transactions. The work might get done but opportunities for growth and personal fulfillment will be missed.

Second, performing the managerial accounting tasks required to run a business effectively requires knowledge and experience.  Making sure the data is captured and reconciled is only part of accounting.  Yes it is the part that is needed to file a tax return and stay out of jail.  However there are ways to use this data to manage the company in an effective and efficient way.  When times are good, there is plenty of cash so the requirement for efficiency is less.  When times are tough and cash is short, running the business carefully and watching the numbers is critical to survival.  This is when budgeting and forecasting become a mission critical activity.

Fortunately, cloud accounting technology has advanced to the point where it is very easy and cost effective to outsource your accounting in addition to your bookkeeping.    Costs are kept down because the technology makes data capture and reconciliation much easier to do by eliminating the need for manual data entry.   The efficiencies gained are then used to have expert accountants, not bookkeepers, review the data.  These CPA/ controller/CFO types leverage their experience and expertise across several companies.

A final comment

The COVID-19 pandemic has no doubt made the current business environment extremely difficult to navigate for business owners and leaders.  To keep your business alive and resilient, it is imperative that you manage your business based on accurate data and sound advice.  Fortunately, cloud accounting technology is making it easier and more affordable than ever to capture accurate real time data.  Additionally accounting firms are leveraging this technology to deliver cost effective outsourced accounting services which are ideally suited for small and midsized business.  Business has become more difficult no doubt. However it is also easier than ever to get the help and support you need to keep your business well now and in the future.