How to stop your business bleeding money

By Brian Sands

Whilst the concept of bleeding money conjures up images of uncontrollable expense and liability, what it’s really about is ensuring that business never gets to this.

Whilst locally we think we may be able to visualise a post-Covid environment of some normality, the fact that the rest of the world remains deep in health and financial crisis will continue to bring volatility to capital markets, disruption to supply chains and uncertainty to economic recovery.

The concept of volatile economic cycles is now business as usual and the traditional CFO role is a thing of the past, now replaced by diverse financial leadership that must be able to juggle functional, operational and strategic risk.

One of the greatest challenges for today’s CFO is balancing the backward-looking performance reporting, the current-view regulatory compliance and financial management, and the increasing demands on them for strategic forward-looking responsibilities around fraud, cyber risk and financial scenario modelling.

Thinking Differently

The concept of accumulating assets (and liabilities) to create scale needs to be carefully considered because ultimately business sustainability is not about turnover. It’s about what’s left over.

Are we cost-cutting to temporarily inflate the bottom line or strategically restructuring our fixed costs to optimise revenue generating activities?

In crisis, a sales first approach is delusional thinking. Chasing funnels, creating leads and buying ads for example, will only impose further financial stress becoming a ‘do more and receive less’ kind of outcome.

The traditional strategy of holding on to bricks and mortar should be reconsidered. Whilst debt coverage could be more efficient than paying facility rent for example, how much innovation, market share and enterprise value, will realising those assets provide you?

The extraordinary digital offering that is available and the ability to capture volumes of relevant data is fundamental in co-creating financially led business strategy. Data drives decisions, not extrapolating ‘desktop risk adjusted’ historical performance.

Doing Differently

All too often we hear of business leaders blind-sided by what turns out to be poor information, illogical forecasting and inaccurate operational reporting forcing profit write-downs, depleted cash flows and often, a precarious business proposition.

For the finance leader there is significant risk in receiving operational numbers from the coalface where the alleged experts purport to sustain the business. Consider these 7 strategies to ensure that the numbers delivered to you are second-guessed and triple-checked:

  1. Key Metrics. A business-specific dashboard of the fundamental operational KPIs that link to cash, those that enable real-time operational decision-making so as to secure revenue, not the other way around. Have a sense for daily, weekly and monthly cash-based productivity outcomes to enable you to dig deeper into operational numbers.
  2. Sensitivity. Pre-determined, consistently applied scenario modelling that continuouslytests operational forecasts. Usually three scenarios – aspirational, likely and worst case – rather than a reliance on traditional ‘set and forget’ time-horizon based predictions, will define the triggers for intervention.
  1. Forecasting. Don’t just target the profit and loss – assessing performance against liabilities for example, will provide a real indication of longer-term value creation. And simply targeting revenue is flawed, as it is often a long time in transition from forecast to actual, whereas costs are actual every day.
  2. Governance. Ensure that any data delivered is relevant, current and based on tangible productivity rather than aspirational forecasts and accruals, that is, you can measure it. Have a say in the design of the data and the information it produces. ‘Off the shelf ‘won’t always apply, neither will “we’ve always done it this way.”
  1. Fixed Costs. Break down the overhead component into separate expense lines. Undertaking a quantitative analysis of individual resources and the impact that each has in creating revenue and delivering profit for example, will get to the bottom of optimum productivity well before global metrics.
  1. Lean Structures. Identify synergies, integrations, outsourcing and technology opportunities, and remove the duplications. Traditional thinking and historical systems are usually indicative of a business that is reluctant to meet volatility and uncertainty head-on.  
  1. Partnerships. Break with ingrained thinking and consider sharing risk in order to scale opportunity. What would you rather – 100% of going nowhere or 50% of going somewhere? Partnerships also provide complimentary skills, different technologies and access to a broader market.

Strategic CFOs recognise that risks are a reality of business that will never entirely be eliminated however they will implement digital solutions to assist them manage them and they will set non-traditional metrics and sensitivity analyses that will inform intervention triggers.

Not only must we do more with less, we must have strategies in place that will capture a greater volume of data, enabling us to forecast at speed, and unlock an adequate runway of liquidity so as to optimise and maximise whatever risk or opportunity comes our way.

Author – Brian Sands is a strategy advisor and interim executive. As an advisor to Boards and Executive teams designing strategy, implementing change and developing people his insights originate through managing large-scale, high-risk, low-margin construction and property businesses. He is also the author of Stop The Bleeding – A Mind Shift Through Business Crisis Management … Thinking and Doing Everything Differently. www.briansands.com.au