How can businesses adapt to these COVID times?

Rodney:  In a previous conversation we talked about sort of the cultural impediments to change, COVID is a classic example. Organizations that were not culturally built for change, probably had  a worst time dealing with COVID. They probably had far more difficulty in adjusting to the new reality. But the reality is probably the number one driver for everything you do and that’s a cultural thing and that comes from the top. If you have that, you’re putting in place things constantly to enable you to respond to what the customer needs, and if you don’t, it’s harder.
Finance isn’t really the custodian of the customer relationship. Finance is the custodian of the outcome of not taking care of the customer, which is the financial implications of losing customers – the financial implications of service delivery that’s more expensive than the benefit you receive from a customer. 

They are the monitor that says you’re losing customers or you’re gaining customers or your service delivery costs are too high or your product costs are too high. So finance, all of that has an effect on the customer relationship, because if you’ve got that customer relationship in a particular place, you can put through those changes, with less impact on the business and if you don’t, then you may have a much more difficult situation. 

How can finance help prepare businesses for future problems?

Rodney:  Yeah, the short answer is, in a time like that, where you have a sudden change to your business, that was completely unexpected, completely outside of your control, and it affects your customers and, or your ability to do business, the more variable the costs associated with your business are, the more resilient you are. And there are businesses in our eco society that have costs that are 80 to 90%, before you get to making a penny. So the gross margins are very small, The thin gross margins means you’ve got to generate a considerable amount of revenue before they cover those fixed costs. I would be willing to bet you that a lot of businesses that are in that situation, have looked for ways to reduce their fixed costs because that makes them more resilient during a difficult time. If I’m going to deaden or lessen the impact of the unexpected, then I’ve got to know what I have available and also what it’s going to cost to continue to operate. 

Why it’s important to stay close to the money?

Rodney:  You have to understand what the actual money impact, real money impact is of decisions and so, when I talk about costs, I’m not talking about notional costs when I’m making a management decision. I have to know how a decision to pursue a particular line or course of action translates into money at the end of the day. The money that comes in, the money that goes out and the money that’s left after we’ve covered all our costs associated with that. Good finance teams understand that and can help the business in evaluating decisions by pointing them to the residual cash that’s available because at the end of the day, the manifestation of every business is cash. 

What advice do you have for businesses at this time?

Rodney: Be very aware of your financial position as close to the completion of your financial periods as possible. 

A lot of the companies that I deal with that faced scrutiny, whether it’s from potential new customers, potential new suppliers or their financial institutions, or the financial backers of that organization, the number one concern that anyone who was a stakeholder or a supporter of that business had at the Covid time is, are you going to be around? And so, in order to give them that comfort, the closer you were to your numbers and the more you had a framework that allowed for reporting, but not just reporting, but reporting and the ability to respond to the questions that arise out of that reporting, the more likely it is you gave confidence to the people who had to make decisions about whether or not they were going to support you. 

Most of the new business that we picked up during COVID, was people who were saying, “I wasn’t close enough to my numbers. I didn’t realize how much of a deficit I had in terms of the immediate awareness of what my underlying financial condition was or my underlying financial performance was.” 

Rodney: Having money in the bank, without having an understanding of how that money turns into more money or how fast that money has the potential to disappear,  you’re just as vulnerable as someone who has no money but knowing how to make more money and knowing how to retain money after you finished delivering your services is probably the most ideal scenario for a business.