There’s no question; COVID-19 is affecting both the health and wealth of the world. At the moment, most accounting firms have the same question: How can we help our clients weather the current coronavirus storm?
We can look to the medical community for inspiration. Doctors and infectious disease specialists are voices of reason in a pandemic. Their advice is to take immediate and decisive action to “flatten the curve” and distribute the number of infected over a broader period of time. This will lower the burden on the healthcare system so that more patients can be treated and survive.
Similarly, accounting and finance professionals should be a voice of reason in the business community. It’s our job to help “flatten the curve” of the economic impact on SMBs by helping our clients take action now to ensure that more of them survive the downturn.
How can we do this? There are a few ways:
- Forecast the impact of a downturn on revenue, expense, debt, and future cash flows
- Help our clients understand where they can cut expenses or add additional resources
- Generate multiple scenarios to visualize the impact of these changes on the business
Here at Jirav, we believe the best way for businesses to survive in a downturn (or take advantage during an economic boom) is with financial modeling.
The problem? It takes time to build a financial model.
Even with Jirav replacing spreadsheets for financial modeling, a full financial forecast can take half a day or more to build. Multiply that across dozens or hundreds of clients and the deliverable may come too late. Your clients need to take action as soon as possible.
That’s why the team at Jirav has created a quick template that you can hook up to your accounting data to start forecasting in 30 minutes or less.
Watch our On-Demand Webinar, “Forecasting the Economic Impact of Coronavirus”, to see how easy it is to start using our COVID-19 template in Jirav.
You can be the voice of reason while simultaneously providing hard data and meaningful advice for each of your clients — right now.
Let’s take a look at the “what” and “how” of providing the best service to your clients during times of uncertainty.
Speed is essential in a crisis
We’ve already mentioned the need for speed in our current predicament. That said, it’s worth going into a bit more detail. Fast decisions are made during any crisis. Fewer facts about the financials often means poor choices. And depending on how long the particular scenario lasts, it could be (eventually) dire.
Example: During a crisis, a small accounting firm has 20 business clients who are asking about cash flow and help figuring out what the next three months look like for them. The office can handle these projections for three clients/day (on top of current workload). That’s nearly two weeks (not counting weekends).
Meanwhile:
- Staff is in limbo. Does the business need to cut hours or lay off workers?
- Inventory may be spoiling and owners don’t know how much to produce and/or order.
- Business owners are wondering if they’ll need to apply for an SBA loan to keep afloat.
These, and countless other issues, need to be addressed now, not later. With Jirav, projections for those 20 clients could be done in days, not weeks.
Uncertainty requires multiple scenarios
We could all be ordered to shelter in place through summer, or COVID-19 recedes in April/May and the economy comes roaring back. The coronavirus could cause a shallow or deep recession. No one knows how the pandemic will play out, so it’s just as hard to know in advance the full scope of the impact on business.
The point is, businesses shouldn’t be making decisions only based on a single forecast. And this is exactly why we suggest providing a couple of projections — minimally one that’s conservative and one that’s aggressive.
An initial forecast can be simple. Group accounts into a handful of categories such as revenue, COGS, fixed expenses, variable costs, travel, marketing, and compensation. Then apply a percentage change to each category based on a trailing 12 months of historical data.
When you're ready to get more sophisticated with your forecast, you can use a driver-based financial model to forecast based on both financial and operational data, not just what happened in the past.
Help your clients make data-driven decisions
There’s no question, these are stressful times. The news, panic, and worry can creep into everyone’s minds — especially business owners. It’s perfectly reasonable to expect your clients to be on edge with big questions about big decisions.
As a trusted adviser, your role is to use numbers to help calm the situation. By forecasting a path forward, you can provide multiple scenarios, ranging from best case to catastrophe to create a well-thought-out plan.
While emotions are running high, it’s crucial to be able to take a step back and use logic to make the best decisions possible. As a trusted adviser, with the proper toolkit, you can be that calming voice to your client.
As part of your toolkit, consider a visual dashboard of KPIs to help your clients navigate the next six months.
Here are some recommended KPIs to start with:
Know your cash runway at all times
Cash is king. Accountants love this phrase, but today it’s ringing true more than ever. Your runway shows how many months of operating cash the business has left before it needs to either turn a profit or get another round of funding. We would argue that it’s a good number to have in mind for all businesses — especially during a crisis.
Your clients will have many decisions to make, and the amount of cash available to the business predicates many of those decisions.
Allow clients to see how many months of runway they have. Take current cash on-hand, then divide by your monthly change in cash per month given average expenses and projected revenue (adjusted for the crisis). The result is approximately how many months of runway the business has left. Figuring out this number makes staffing and loan choices easier to make.
See how to calculate runway using Jirav here.
Revenue per employee (and other people planning KPIs)
During any financial crisis, managing cash flow while taking care of employees is a challenge. That difficulty is multiplied during COVID-19 as businesses have to also weigh safety concerns.
Many businesses have already felt this strain, and the result is a record-breaking 6.6 million unemployment claims last week.
On the other side, investor Mark Cuban is advising companies to fight to protect employees at all costs, saying their handling of people will “define brands for decades.”
We have to balance heart and head — do what we can to keep employees on payroll while also ensuring the survival of the business.
One way to do that is with a variety of “people planning” KPIs. Revenue per employee is one example. When revenue is falling quickly, it’s often more helpful to view it in terms of your total number of employees. Set a threshold for layoffs before being overstaffed threatens the entire business.
If you are looking ahead and seeing no good alternatives for your client, there are a few places you can point them.
- Consider a loan: As part of the stimulus efforts in the U.S., the SBA is offering emergency low interest loans for businesses affected by COVID-19.
- Execute with caution: Nothing about this will be comfortable. Our friends at Gusto have put together a great series of articles about HR considerations in this challenging time. Point your clients to this article if they need an in-depth look at layoff considerations.
Detailed revenue projections
On a more positive note, as a trusted adviser, you can also help bring to light opportunities in this challenging situation. Don’t resort to only playing defense — plan for the worst-case scenario. Your clients need to keep taking action, and your reporting will help your client refine their focus.
Most businesses bring in multiple streams of revenue. They may have a combination of products and services, or sell online and in person. Break out those specific streams and dive in to see what’s been working well and what hasn’t. During times where extreme pragmatism is needed, you’ll need to help cut out any waste possible.
Let’s say your client owns a fitness center. They offer classes, personal training, and a monthly membership. Could they move the training and classes to a virtual format at a slight discount? Could the marketing spend then go toward the activity that brings in immediate cash while the gym is potentially closed?
To plan for this, you’ll need to break out the projected revenue by category to provide a true look at what could change in terms of cash flow.
It’s worth mentioning, as advisers, these are not decisions we have to make. Our job is to help figure out what’s working and what’s not, then show our clients what could happen in a variety of scenarios. Ultimately, the business owner has to make the tough choices. We can help by giving them options.
A steady voice in times of uncertainty
Our clients need help. During times of confusion and fear, it’s time for accountants to step forward. At Jirav, we’re here to help you do that with financial planning and analysis software that’s both powerful and easy to use.
With a forward-looking financial model, the ability to compare multiple scenarios, and a visual dashboard to easily communicate with your client, you can help them make the best decisions possible.
