For us, as outsourced Finance Directors (FDs) and other Finance professionals looking ahead to what the remainder of Q3 and then Q4 might bring for businesses, here are the key watchouts and the actions to keep your business nimble on its feet – even if we’re heading into a period where there is a lot of economic uncertainty around.
A resilient business in five
Key to ensuring your business can emerge stronger in Q3/Q4, we believe, are five key factors: agility, flexibility, planning and forecasting, knowing your numbers, and holding onto/generating cash.
Here’s what to consider when working these priorities into your day-to-day business in Q3/Q4.
Pricing: to raise or not to raise?
The cost-of-living increase has focused many businesses on employee pay, and will continue to do so, but pay review is of course part and parcel of the normal cycle of business management. The question is, if you do raise pay, will you also raise the prices of your products and services by an equivalent (or even greater) amount, or not?
The same question holds good for your response to rising supplier or raw materials costs – do you pass them on to the customer, or not?
If you do, it may have an adverse effect on customer loyalty and retention, but if you don’t, profits and cash will erode.
Finding a “halfway house” that enables you to soften price increases without taking a damaging hit to your finances is perhaps the best possible course of action, but that can’t be a “finger in the air” exercise – it will require detailed scenario modelling and forecasting as explored below.
Change and scale at short notice
In any business, workload can suddenly hit the roof, or rapidly slacken – and there can often be multiple cycles of this through a quarter and beyond. But there’s an opportunity here, in the ability to easily change how you adapt to new or lost work.
This compelling solution is outsourcing. Typically, you pay only for the hours you use, whether few or many, but extra hours can quickly be secured to provide scale at short notice.
And outsourcing is not just a people solution; equipment, support, and even entire offices can be outsourced, with terms of suitable length for your requirements, and the flexibility to cost-effectively provide more of what you need, as and when you need it.
Revisit costs but spend where it matters
It’s easy to allow costs to accumulate when you’re fighting a fire – and weigh you down thereafter.
Have you become a little lax since Covid, for example, with increased costs that you could probably now switch off? Additional licences for videoconferencing software and home office working spring to mind, so as well as cancelling what you no longer need, it’s probably a good time to revisit your homeworking policy to reduce and limit licence expenditure going forward.
(In fact, financially well-managed businesses should, in general, be regularly reviewing costs, comparing trends and prior years’ expenditure, and identifying opportunities to turn discretionary items off.)
But equally, it’s important to remember that in times of economic uncertainty like those we’ll undoubtedly be facing in the coming quarters, you need to make sure cost control doesn’t stop you spending on the right things. Activities that ultimately make you money and generate cash – like sales and marketing, for example – should not be considered discretionary costs.
Take a close interest in interest
Interest rates are a good example of where difficult conditions can deliver hidden opportunity. For example, rates are now rising – so if you have surplus funds, are you ensuring they’re deposited or invested where you’ll earn most from them?
Correspondingly, however, borrowing costs are high, so what can you do to avoid or reduce the need for borrowing in your business?
Better working capital management can help you here; bill quicker and collect quicker by changing your billing model to advance bill or stage bill, rather than billing after the event, for example. This this needs to be modelled and planned accurately, but a part time FD is often well suited to providing the necessary information in a cost-effective manner.
And it’s a good idea to look at certainty and volatility in the markets and understand how you might balance them. Hedging currency to minimise foreign exchange risk, for example, can be an effective way of doing this.
Keep watch, take action
It’s important to constantly keep on top of the cash situation and be able to react. When you have cash gaps, consider options from delaying spend to financing (say, capital versus buying outright), and agreeing more favourable payment plans so that you hold onto cash and facilities.
Above all, know your numbers, and where they’re coming from. Is your management information (MI) up to scratch? Are you producing and reviewing it regularly? Are you on top of your short-term (e.g. weekly) cash forecasts?
This will show you where you’re making and losing money – and you can then figure out how to maximise the former and minimise or eliminate the latter.
And if you’re in trouble or can see trouble coming, get advice early. We help businesses to know and act on their numbers every day.
Growth and expansion? It could be the right moment
Whilst recent changes in market conditions, the trading environment, and buying habits may all have upset the apple cart, they may well also have created demand for new products and services, in new markets – and now could be the time to capitalise on them.
You may even find that you can acquire another business to facilitate this repositioning speedily – particularly as it’s very much a buyer’s market now, and there are good-value acquisitions to be made.
Trouble ahead? Opportunity knocks…
In short, none of us has a crystal ball. But whatever’s on its way in Q3/Q4, with the right guidance and advice, you can not only weather it, but turn it to your advantage.
And that’s one of the things that small businesses do best with the right support.
For a Finance function that’s alive to the opportunities the rest of 2023 could bring, get in touch today.