All across the economy, the coronavirus recession has had significant downstream impact on the financial health of businesses, including many professional service providers. As many American businesses tighten their spending, service providers are being asked to do more with less. To weather this storm, service providers must use all the management and finance tools available to them. Owners and business leaders not accustomed to recession finance in particular may be unfamiliar with the principles for managing their practice during an economic slump. That is why BPM has compiled this list — to draw attention to the operational areas that should be at top of mind.
1. Plan for the long term.
If your firm’s financial position has shifted suddenly, the tendency can be to focus on immediate solutions. However, when making major decisions about your expenditures, it is essential to remember that for your business to remain a profitable source of income it does not need to survive for just a few weeks or months — it needs to survive for the long haul.
So long-term planning is essential, but how do you accomplish that? By using the financial tools available to you. Cash flow forecasting, for instance, helps you understand your future position by extrapolating from your current income and expenses to predict the future needs of your firm. Once you adjust the forecast for any anticipated changes in operations, the results can help you estimate the amount of time your firm could remain open and pay all of its obligations such as payroll, rent, etc. If what you find is not satisfactory, you may need to rethink your budget.
For an idea of what goes into a cash flow forecast analysis, readers may want to look at one of the numerous small business cash flow forecasting templates that can be found online. But for more complex situations, it pays to seek expert help.
Economic forecasts, which look at the factors beyond your business’s control that nevertheless affect your business, can similarly help you determine how long you may need to reduce expenses. General economic forecasts are produced regularly by governments, NGOs, research firms, and other institutions, and can be helpful to a degree. However, to get the data that is most relevant to their firm, leaders will likely need to procure custom, tailored analyses.
And on the subject of budgets — if you are not already, you should really be reviewing your budget every month and making adjustments or revisions as necessary. If there is one positive thing that comes out of this recession, it should be the renewed commitment to financial discipline needed for long-term success.
2. Pay only for what you really, truly need.
This might seem obvious, but unless you review all your expenses on a regular basis and prune as needed to stay within your budget it is easy to get saddled with unnecessary contracts for supplies, services and other costs. When times are tight, this matters because things like supplies or office space are more easily replaced when the crisis is over; good employees are lot harder, as they will likely have moved on by the time you can re-hire them. Additionally, the loss of a knowledge base and the cost associated with the time it takes to retrain and rebuild that knowledge base might diminish any short-term cash savings from laying off employees. That being said, if keeping on staff comes at the expense of the financial security of the business, the decision may be inevitable.
Staff is the most significant cost for professional service firms, but depending on the type of practice, your firm may have contracts for essentials like leased equipment, rent and insurance, as well as less essential perks such as health club memberships or fringe benefits. Obviously, the nice-to-haves are easier to do away with than the essentials, but even core operating costs can often be reduced by reviewing your contracts and re-bidding, renegotiating or reducing your level of service where possible.
Another fruitful option would be exploring subleasing office space, especially if you have had a reduction in staff or have more staff working remotely going forward. You might also consider delaying major capital expenditures or other investments unless there is a really good case for doing otherwise. Don’t be afraid to reign in discretionary spending. Although this may not be a popular choice among staff, if you are transparent with staff about the reason for doing it — that it is a far preferable alternative to layoffs — you’re more likely to win over their support.
Within this cost-cutting mindset, it is still important to be mindful of the long-term consequences of your decisions. If you decrease or cut spending now, also think about what that will do to you in the long term. For example, significantly reducing a contract or canceling it for the short term only to start that work up again down the road could have the long-term effect of your business paying more overall due to cancellation fees, rush fees, overtime, and the like. As always, there is a balance that needs to be struck.
3. Use the time and manpower you have efficiently.
This recession is the perfect time to put your business management skills to full work. To ensure maximal efficiency, employees should review with managers all the activities on which they spend their time, with an eye towards identifying tasks that may be more efficient to contract out.
In a similar vein, where there is a need for specific talent, leaders may want to consider hiring freelancers and other outsourced labor rather than hiring an in-house, full-time, permanent employee. Often, the idea of having your own in-house employee at a relatively “competitive” rate is a false economy, especially if there is not consistently a full-time amount of work for them to do or the work needed is not entirely within their specialization.
Lastly, before you consider effectively permanent approaches to reducing labor costs, consider other options such as reduced hours, reduced benefits or a shortened work week. Layoffs can actually be surprisingly expensive after severance packages, unpaid vacation and other expenses are said and done, so these non-permanent solutions can not only be more ideal from a staffing standpoint, they can also be more economical in certain situations. Labor laws do apply here, in many jurisdictions, so tread carefully and seek out a labor compliance expert where necessary to avoid any potential lawsuits or penalties.
4. Reconsider your marketing strategy.
The way people interact with service providers has changed this year and the marketing function of your organization must respond to this too. The point is always to meet people where they are, and for the foreseeable future that is in a digital environment. One of the best long-term investments might be to redesign your website and invest in SEO and social media marketing. How easily can people find your website or your company on social media? For service providers, engaging in social media is becoming increasingly more essential.
More than ever before, potential clients are judging your firm based on their experience with your online presence. Younger generations are increasingly tech-savvy so their expectations are higher. Broken links, broken workflows, slow loading times, or websites that are generally clunky can create an experience more negative than a rude customer service employee.
Whatever change you make to your marketing strategy, make sure all your firm’s marketing materials and engagement tactics are adjusted to align with this new strategy.
5. Get help.
Since your time and resources are more valuable than ever, consult a finance professional familiar with your industry who can help you think through the implications of all of these considerations. Since no two organizations are alike, there is no one-size-fits-all approach. Set up a meeting with a tax professional to strategize ways to minimize your tax liability, or if you need a robust payroll system to manage your newly remote workforce, find an accounting firm that specializes in Human Resources and ERP system implementations. The theme here is when you need help, ask for it. Change is almost never as straightforward as it seems and unforeseen complications can be costly, so do not try to go at it alone!
BPM for Professional Services Firms
Professional services firms are focused on providing the highest quality services to their clients, and they should expect the same high-quality professional services from their own providers. That is where BPM comes in. BPM is one of the largest California-based accounting and consulting firms, ranking among the top 50 in the country. Our Professional Services Industry Group brings together dozens of professionals across our tax, assurance and consulting practices. The industry has its own set of financial complexities and it takes a dedicated team to know how to solve them in the most efficient, profitable ways. Each member of our group brings differing expertise from our tax, audit, consulting and accounting practices, all with a deep understanding of the challenges of operating a professional services firm in today’s world. For more information, visit https://www.bpmcpa.com/Industries/Professional-Services