TORONTO--(BUSINESS WIRE)--Chartered Professional Accountant, Rodney Davis of GreySuits Inc., a strategic accounting firm, speaks about how business can adapt to the fallout from COVID and how they can prepare for future challenges.
Q: This year has been a major upheaval. There really is no new normal. Companies have faced untold financial challenges, many not surviving. How can I as a business adapt to the current situation?
Rodney Davis: In a previous conversation, we talked about 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, you have to have a culture that understands that the customer is the number one driver for everything you do. If you have that, you're putting in place things that enable you to respond to what the customer needs, and if you don't, it's harder.
And finance isn't 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. 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 if you have that customer relationship in a particular place, you can have changes with less impact on the business. And if you don't, then you may have a much more difficult situation.
Q: Can finance help prepare businesses for future problems?
Rodney Davis: The short answer is, yes. 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 or your ability to do business, the more variable the costs are that are associated with your business, the more resilient you are. There are businesses in our economy that have costs of 80 to 90% before you get to make a penny. So the gross margins are very small. These businesses that have a high fixed cost have 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 in that situation have looked for ways to reduce their fixed costs because that makes them more resilient during a difficult time. But 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.
Q: Why is it important to stay close to the money?
Rodney Davis: You have to understand what the actual money impact of decisions are. 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 – the money that comes in, the money that goes out and the money that's left after we've covered all our costs. 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.
Q: What advice do you have for businesses at this time?
Rodney Davis: Be very aware of your financial position. Be as close to the completion of your financial periods as possible. A lot of the companies that I deal with that faced scrutiny, whether from potential new customers, potential new suppliers, their financial institutions, or the financial backers of that organization have one concern from a stakeholder – are you going to be around? So to give them that comfort, the closer you are to your numbers, and the more you have a framework for reporting and the ability to respond to the questions that arise, the more likely you give confidence to the people who make decisions about whether or not they are going to support you.
Most of the new clients that we picked up during COVID, were people who were saying, “I wasn't close enough to my numbers.” “I didn't realize how much of a deficit I had.” There was no immediate awareness of what their underlying financial condition or my underlying financial performance was.
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 makes you 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.
Rodney Davis, CA, CPA is a partner and practice leader at GreySuits Advisors Inc. (www.greysuits.ca) He has been working with private and public organizations since 1990 in change management.
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