Cash is king, especially now that the coronavirus has created widespread uncertainty about supply chains, buyer confidence, and when the world will finally escape from this pandemic.
“Cash flow management and preservation should be your No.1 financial priority right now.”
Even during good times, field service industries grapple with factors beyond their control, such as supply chain glitches, project delays, late payments, labour blowout, etc. These situations are more likely to become common during a pandemic and manufacturers are also more likely to extend lead times and delivery/pickup arrangements to job sites, all of which will result in delays, extensions and ultimately overrun in estimated labour.
Besides devising contingency plans for those interruptions, field service businesses should look at multiple scenarios for their cash flow, such as what their balance sheet looks like at 75% of current output, at 50%, and so on.
Working through those situations can be the beginning of not only figuring what costs to cut to keep the doors open but also determining if your client can afford to sell their services at the reduced profit margin. simPRO’s comprehensive reporting provides multiple opportunities to figure out how to manage these challenges. The best practice is to start with the basics which you can find in this blog, five simPRO reports for better decision making during COVID-19.
Paying the bills
Keeping consistent vs better cash flow
A source of pride for some businesses is their reputation for paying wages every week/fortnight/month and their suppliers within 30 days. That’s a great practice for being the business-of-choice among subcontractors but it is also a habit that can turn into a self-inflicted wound on their cash position when the market slows.
So how do your field service clients keep their reputation and manage the flow of cash? Clients can approach suppliers about extending payment terms to 60 or 90 days. Labour-intensive trades with large payrolls probably can’t afford to be so lenient. But suppliers may be in a better cash position, and if the business has a good relationship with them, they may be more flexible.
Make plans for finances
While the current cost of money is favourable for borrowers, businesses should huddle with their accountants or bank managers now—rather than when their account balance declines—and prepare applications for a bank line of credit, a bridge loan, or a small-business loan. That’s where you come in! As a trusted advisor to their business you’re positioned to help them through this difficult time.
Don't finance customer projects
Your clients should stop work on projects if customer payments aren't up to date. Again, simPRO’s reporting functionality can give insight into un-invoiced and unpaid work that remains on the books with a few clicks. Recommend they do not continue the work until the current stages are invoiced and paid to ensure that your clients are not left out of pocket should their customer not be able to pay in the future.
Perform daily project reviews
And confirm that costs and billings are up to date and client-approved so the project can progress to the next milestone that triggers a scheduled payment by their customer. If the project isn't approaching a payment milestone and your client is under-billed on the project, they must bill their customer and communicate with them daily until that money is in the bank.
“Good relationships now mean a stronger position for negotiation later.”
Invest in cloud-based technology
It’s tempting to think of a recession as a time to batten down the hatches and play it safe. However, downturns present a perfect time for the adoption of new technologies.
Why should your field service clients invest in technology during a recession when money is tight? Simple - it’s because their opportunity cost is lower than it would be in good times.
When the economy is in great shape, a business has every incentive to produce as much as it can. And if it diverts resources to invest in new technologies, it may be leaving money on the table. But when fewer people are willing to buy what they are selling, operations need not be kept humming at maximum capacity, which frees up the operating budget to fund technology initiatives without dampening sales. For that reason, adopting technology costs less, in a sense, during a recession.
A job management solution, especially cloud-based systems, can streamline their business and make it more transparent, flexible and efficient. One of the first reasons to prioritise digital transformation ahead of or during a downturn is that improved analytics can help management better understand the business, how the recession is affecting it, and where there’s potential for operational improvements.
The second reason is that digital technology can help cut costs. Businesses should review their workflow and automate administration tasks leveraging off easily available integration tools and adopting data-driven decision making.
The third reason is that digital technology investments make businesses more agile and therefore better able to handle the uncertainty and rapid change that comes with a recession.
“Cloud-based solutions streamline operations and provide certainty in decision making.”
Businesses that have already made an investment in digital technology and streamlining business workflows may be better able to understand the threat they face and respond more quickly.
As we have previously seen, recessions can create wide and long-standing performance gaps between businesses. Research has found that digital technology can do the same. Businesses that have neglected digital transformation may find that the next recession makes those gaps insurmountable.
Discover more benefits of adopting new technology in our blog, Benefits of cloud-based operations management software in a crisis.
Help to future proof your field service clients business during this current crisis and into the future. Contact simPRO to find out how becoming a partner can position you as a trusted advisor and help to streamline your clients business.