This series addresses various recession proofing strategies that can be implemented by your Chief Financial Officer or part-time CFO including:
Implementing strategies around these elements shield your business during tough times and prepare you to take advantage of opportunities as they arise. Importantly, recession proof companies are prepared before the economic slowdown occurs – they do not wait until it is too late. All businesses are different, it is important to implement strategies best suited to your business. Your CFO or part-time CFO should lead, identifying and implementing the strategies most suited to your business.
Now is the time to act.
Economic Indicator: Inverted bond yields have preceded the last three global recessions in 1982, 1991 and 2009. Twice in 2019, the most recent in August 2019, the bond yield was again inverted. Whilst this does not mean a recession is necessarily around the corner, it should give boards and executives a reason to pause and reflect on how this increasing macroeconomic risk of economic slowdown or at worst recession could impact on their business.
Part 1 - Focus on Profit Now
The revenue profile of recession proof businesses is not that different to businesses heavily impacted by a recession. What is substantially different is their ability to generate profits and to maintain operating profit levels.
Strategies that need to be reviewed to improve operating profits with a view to being implemented by your CFO include:
1. Productivity Improvement
Understand which staff are less productive, perform regular reviews with clear job descriptions and KPIs. The aim is not to put an axe through the team but to objectively understand the productivity of the team. It also provides you the opportunity to trim any excess or less productive staff.
Review and optimise the key processes potentially certifying aspects of the processes. This could lead to outsourcing or even insourcing elements of your business.
Invest in equipment that could automate elements of operations and lead to reduced operating costs.
Invest in systems that create operating efficiencies through improved monitoring and measurement of the business.
Establish effective lead and lag indicators from existing systems to enable you to manage the peaks and troughs of operations more effectively. Importantly, if you are measuring the wrong information you are influencing the wrong behaviours.
2. Accurate Forecasting
Keep your business forward looking to see when the dips start to occur and act on them. Implement processes that every month keep managers across the business, accountable for key deliverables. Your CFO will develop a forecasting model that includes all the key inputs and results in a 3-way forecast of profit and loss, balance sheet and cash flow. Only understanding all three levels will result in robust forecasting.
3. Measures and Metrics
Whilst productivity improvements can have medium term impacts and accurate forecasting will largely occur around monthly cycles. Implementing effective measures and metrics through dashboards or reports will typically have weekly or even daily impacts on the business. In its simplest form areas of the business need to know how they are tracking to targets as frequently as possible so they can adjust in a timely manner.
4. Build capability in your finance team
Your finance team is typically considered the end of the process where they are tasked with completing the monthly and yearly financials on a timely and accurate basis. If they don’t have the forward-looking skills to develop and implement recession proofing for your business another option might be to have an exceptional part-time CFO coach and mentor the team while at the same time building the capability to withstand an economic downturn.
About CFO Evolve
CFO Evolve provide exceptional part-time CFOs and virtual CFOs that can review and implement the strategies most suited to recession proofing your business. Contact us today to see how we can assist your business.
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