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Business|Finances|Softwares
Best Practices For Cost Management Amid COVID-19
Undoubtedly, COVID-19 pandemic has resulted in a cost management exercise for many companies. Particularly under the present scenario, most of the organizations (especially MSMEs sectors) are facing challenges to survive due to fewer earnings and unavoidable costs. Under such unprecedented circumstances, only those organizations will survive that can effectively manage their costs, cash flows, and working capital.As the impact of the pandemic extends, all functional leaders face pressure to cut the costs, but at the same time, it is critical too to avoid thoughtless responses. In this article, we would like to discuss the cost management process that includes several best practices on how to manage costs in times of COVID-19.
Working capital management is vital for the success of any business. It is more relevant under COVID-19 crisis since extra attention is required on vendor payables, accounts receivables, and the liquidity forecast to ensure effective management.For effective cost management, organizations should stay transparent with the customers and explain to them about the present situation of the business. Customers usually empathize and cooperate with the companies facing difficulties if the companies communicate proactively. The tone of the communication should be assertive, clear, and align with the entity's brand. Furthermore, customers must be provided with timely updates.To maintain healthy relationships with the vendors, they should also be informed in advance if there is a delay in payments. This approach will not only improve the working capital position but also prevent the damage to the relationships.
When organizations plan cost management, the leaders must keep the employees informed about every development and the latest updates. It is imperative to keep the morale of the employees high under difficult circumstances to ensure maximum productivity and job security.Under the circumstances of the layoff, the first option should be to cut the salaries of higher-class executives to retain the workforce. However, when it is unavoidable to retain the entire workforce, the company should give extra compensation to the resources during the layoff.
Finance leaders need to ensure that the company has adequate cash and liquidity to avoid disruptions in the operations. In today's time, when the finance cost is continuously rising, and the stock value is declining, CFOs must keep re-examining the finance strategies.They should keep revising their revenue forecast models and reducing enterprise costs to help them face this uncertain time. The leaders should start exploring different business avenues to ascertain which markets and line of business(es) could bounce back first.
Many organizations are failing to use the full range of digital technologies to support their workforce remotely in the best possible manner. It can provide the entities with a competitive advantage by doing things better, faster, and cheaper than their competitors. As one of the best cost-saving initiatives for companies, the impact of digitalization is invaluable, even for MSMEs, as it offers them to innovate and grow.During the current disruption, MSMEs can deploy and use cloud managed services without much struggle. For instance, the use of Tally.ERP (now TallyPrime) and QuickBooks on cloud and integration of Zoho books with ERPs will help in maintaining and updating the financial records on a real-time basis with minimal human errors.All functional leaders should take the initiative to arrange training and hands-on support for remote workers to keep them abreast of the latest technologies. Digitalization offers several benefits. It enhances efficiency, effectiveness, minimal errors in working, smooth & stress-free business operations, and helps cross-functional teams collaborate on cost-saving initiatives.
All the functional leaders must brainstorm on how to provide the best services to the customers and sustain the business. This is the time to act wisely and immediately to sustain the business. Organizations must also make safe and secure virtual working arrangements for the employees.When it comes to cost control and cost reduction, all less essential business travel must be restricted. The business activities need to be prioritized and performed based on the importance. e.g. employee payroll, healthcare, and supply chain should not be impacted. Organizations must think proactively about the future course of action. They must bring their high talent and distributed team together to ensure the delivery commitments to the client.
In times of uncertainty, it is a wise approach to convert fixed costs into variables. For instance, selling fixed assets and then leasing them back is one way to generate cash in a crisis. This may not be effective immediately but may be crucial to longer-term cash flow management, depending on how long demand and supply chains are disrupted by COVID-19.In case the pandemic is causing continuous pressure on the revenue streams, C-suite executives must think and strategize to replace the revenue streams. For example, if the primary markets of an organization are international, how can it pivot to the domestic markets.
There is no doubt that the spread of the novel coronavirus has created a worldwide humanitarian and economic crisis. During these uncertain times, the CFOs can play a strong and central role alongside executive peers, in stabilizing the business. They are the key technology adopters & change leaders and must lead from the front in the financial and strategic aspects of crisis management.For effective cost management, Finance leaders need to build a culture of preserving cash and deploying it sensibly. CFOs must communicate this culture amongst all the divisions and help them understand its importance. Once this culture is established, CFOs need to be involved in making operational improvements to strengthen productivity and investing in the finance function’s capabilities.CFOs with other cross-functional leaders can make several operational moves to support near-term performance improvements. For instance, they can identify new product revenue streams that will bolster the financial position of the company. They can also define the finance contingency plan.As stated by Financial leaders of Deloitte, Jason Dess, and Nnamdi Lowrie in The Wall Street Journal, these are difficult times for business. A robust financial contingency plan can not only help in cost reduction but also to sustain in uncertainties. The recent pandemic (COVID-19) has affected the global economy. Under the current circumstances, financial forecasting is not a normal pattern. Financial forecasting under COVID-19 situation requires a different approach and decision making under the inconsistent business environment.
