Prepare Your Organization for Both Up and Down Cycles
By Lawrence Baye, CMC, CISA, Principal; Mark Bednarz, CPA, CISA, CFE, Partner; and Elizabeth Gousse Ballotte, Partner
While many economists predict global growth, U.S. consumers continue to feel the weight of high interest rates, overseas conflicts and recent natural disasters — making growth forecasts ambiguous at best.
Whether you’re a bull or bear, it’s just good business to have plans in place that allow your company to pivot with economic shifts — particularly for small and midsize organizations that have less size, scale, funds and assets than larger entities to endure a downturn.
Regardless of whether you are a for-profit or nonprofit organization, consider four important focus areas that can help you navigate the future — either weather a storm or capitalize on growth opportunities.
1. Sharpen Your Strategy
Determining the right strategic priorities that align to the times should be the result of input solicited from your Board, employees, partners and other stakeholders. Your organization’s strategy should additionally have a blend of programs, products and services that can be dialed up or down as they become more or less profitable. Robust budget and cashflow models are also important to determine which actions may be required in response to different economic scenarios. Examples include:
Life Science Company: Evaluates its development pipeline and decides to invest in only those products that have a high probability of commercial success and market acceptance.
Private Foundation: Concentrates its awards on fewer recipients that can then utilize the funds to make more significant impacts.
Human Services Organization: Examines its government and private funding to determine whether the level of reimbursement adequately covers all costs of providing food, shelter, health care and training. Then, either requests a contract adjustment to address shortfalls or doesn’t renew.
Retailer: Determines that certain goods are priced too high. Asks the manufacturer for price concessions/discounts to move the items or take back anything unsold for full credit.
Any Small/Midsize Company in Unpredictable Market Conditions: To help budget and predict future revenue and expenses, consider creating multiple budget scenarios based on different factors such as economic downturn, competition, supply chain disruption and technological advancements.
2. Enhance Your Revenue
Looking at your organization’s historical revenue growth, it’s important to focus on the customers and clients that have the greatest potential for your future revenue growth. Also consider new customer segments that have proven to be recession-proof in times of downturns. Likewise, explore new distribution channels or offer complementary products/services to existing customers. Regarding invoicing, consider establishing payment plans with at-risk customers or provide more convenient payment methods to discourage the buildup of large receivable balances. Last, examine your pricing model and consider making adjustments to attract new business. Some tactics include:
Applying Data Analytics to Market Segmentation: Data can help you identify both the best customers to target and programs to attract them (e.g., private label, dedicated sales support, personalized email promotions). Data can also help you find customers abandoned or neglected by competitors because they don’t fit their profitability model but would be attractive to your organization.
Launching Aggressive Marketing Campaigns to Prosperous Industries: As an example, a company that provides maintenance and repair services for equipment can target health care facilities, supermarkets and other prospects that have prospered during prior slowdowns and have a continuous need for your services and supplies.
Offering Direct-to-Consumer Product Lines: An apparel business that sells its garments to upscale department stores and boutiques begins offering certain lines through a direct-to-consumer channel and added-on accessories to its offerings.
Implementing Creative Payment Plans: Telecommunications businesses and other utilities may implement payment plans for hardship situations tailored to customer financial situations, offer level payments with year-end true-up, provide discounts for direct debit payments with instructions on their website and invoices for credit card usage.
Establishing a Tiered Pricing Model or Giveaways: To avoid surprises for clients, a trust and estates law firm establishes a tiered pricing model with set flat fees, so clients know the cost of each deliverable as the work is performed (e.g., wills, powers of attorney). Hourly rates kick in for special assignments such as litigation matters. Another example is that a supermarket may sell similar types of products at different price points, so consumers have a choice when making their purchasing decision and feel a sense of control. Product giveaways also have proven to generate more in-store traffic.
3. Minimize Your Costs
While it may seem obvious, it’s always a good idea to evaluate discretionary costs that can be avoided or deferred, such as business trips, conferences, marketing programs or events and entertainment. Additionally look at opportunities to negotiate more favorable terms, rates or pricing with financial institutions or suppliers. Also keep reserve funds available for greater liquidity. Evaluate your real estate contracts to find ways to reduce your occupancy footprint. Also assess whether you can adjust headcount or compensation by realigning your organization or reporting structures. Use performance evaluations to identify employee skillsets that need upgrading to take your company to future success and profitability. Examples include:
Leveraging Technology for Virtual Options: In many instances, videoconferencing is an adequate substitute for face-to-face meetings and events. Virtual participation is not necessarily detrimental to business development and so your organization might limit costly in-person activities.
Planning for a Rainy Day: A nonprofit organization builds a rainy-day fund, having a standby line of credit and retiring high-cost obligations. They additionally increase their purchasing volume by renegotiating vendor contracts and, if necessary, are ready to seek alternative vendors as replacements.
Reducing, Reconfiguring, Sharing or Moving to Lower-Cost Locations: Some ideas to improve your occupancy footprint are to sublet unused space or reduce square footage by eliminating, reconfiguring or sharing desks through reservation systems for hybrid staff. You could even consider moving back-office and administrative functions to new, less expensive locations.
Adjusting Headcount, Work Structure or Compensation: Some organizations cut bonuses or ask employees to make a larger contribution to their benefits premiums in lieu of headcount reductions. Others reduce starting salaries for new hires. Sometimes, it’s a good idea to shift work to part-time/seasonal staff and contractors. Also try investing in upskilling or outsourcing non-essential functions. Other organizations have implemented robotic process automation to reduce non-value and time-consuming activities and avoid hiring additional employees.
4. Transform Your Operations
Consider transforming your operations to realize productivity gains, increase profitability, cut costs and increase customer and employee engagement. Below are key ways to identify potential areas for improvement and uncover hidden opportunities:
Assess Organizational Structure: You’ll want to achieve a more adaptable, agile and resilient framework that eliminates functional silos, enables continuous learning and knowledge-sharing and fosters manager accountability using performance metrics and formal quality standards.
Redesign Operational Practices: Designed to eliminate bottleneck points as well as redundant and non-value-added activities, foster better communication, improve the control environment and collaboration and adopt uniform procedures. There are established frameworks — for example, the International Organization for Standardization (ISO), American Institute of Certified Public Accountants (AICPA) Trust Service Criteria and National Institute of Standards and Technology (NIST) — that help organizations promote consistency and accountability, while reducing risk.
Leverage Your Data: The data captured in enterprise resource planning (ERP), customer relationship management (CRM), point of sale (POS), case management, financial and other systems can help identify ways to automate manual processes, streamline workflow, reduce errors, facilitate change, enable digital engagement and apply analytics. Existing systems often have untapped capabilities that do not require the purchase of new/additional software. Also, many organizations have found that leveraging artificial intelligence (AI) and robotic process automation (RPA) not only improves transaction accuracy and completeness but enables staff to focus on exceptions and value-added activities over data entry.
Contact Us
PKF O’Connor Davies can help guide and assist your organization in revitalizing its strategy, increasing revenue, realizing cost-savings and transforming your operations. Our professionals work across industries and bring both knowledge and experience to each engagement.
To discuss your specific needs, please reach out to your client service team or:
Lawrence Baye, CMC, CISA
Risk Advisory Principal
lbaye@pkfod.com
Mark Bednarz, CPA, CISA, CFE
Risk Advisory Practice Leader and Partner
mbendarz@pkfod.com
Elizabeth Gousse Ballotte
Risk Advisory Partner
eballotte@pkfod.com