This is an article about regaining control of your business.
The fact is that coronavirus has changed life and business as we know them. Companies uprooted from physical offices are learning how to manage a distributed workforce while concentrating on staying profitable. Meanwhile, many CEOs see continued revenue decline in the coming months. They need business stability.
You will very likely be faced with these consequences. And you can get a grip on them. But that can only be done with the information to fuel it.
This is our bread and butter — why companies run VOGSY. Transparency of data and predictability for their business. And so we looked at how we bring some of that experience to you to start stabilizing business now.
In this article, you’re going to learn how to analyze your financial position and future of work in the short to medium term so that you have the clarity you need to determine your next steps.
Stabilization step 1: Get cash under control
Before you do anything else, get your cash under control and business stability. In this article, we’re focusing on your cash inflow only. Cash control is a matter of good housekeeping, diligence and communication.
Ask yourself and your teams these questions below. If the answer to any of these is “No” — consider changing your approach. If you can answer yes to all, you are off to a good start.
- For every hour spent on any service or project: Has it been tracked on time so that it can be included on the next time/material invoice?
- For every time entry, do we know the client/project/deliverable/task and any remarks so that we eliminate any chance of our invoice being challenged?
- Have we charged the customer for any external project costs as soon as possible and with extra tight payment conditions?
- For all our projects and clients, have we negotiated our invoicing cadence down to weekly or at least bi-weekly?
- Have we optimized our payment conditions as far as we can stretch them, so that money comes in as quickly as possible?
- Have we taken care of all invoice disputes we had?
- Are all our project managers doubling down on any possible issues with quality, timelines, project reporting and clients approvals, and are we constantly and actively communicating with clients?
- Is everybody in the business aware of our actions and their importance, and of any possible contribution they could make to keep the money coming in?
Stabilization step 2: Get a grip on current and future revenue
So — what’s a revenue forecast, in our definition? Here is the gist of it.
A revenue forecast has four buckets:
- Any future sale that is well defined and likely to be counted as potential revenue with a high enough and well-founded sales probability
- Any work that has been sold but to which no resource has been allocated yet
- Any work sold with a resource allocation and a schedule for delivery
- Any work that has been delivered already during the current forecast period
The simple question you should ask yourself is: Do I know every nickel and dime in each of these four buckets?
If you don’t know these answers or it takes you a long time to get to them, you will need to tweak your project plans, systems and data structure. As with cash flow, a lot of this is about being diligent with the data that you compile and analyze.
Sit down with Sales and really get into the nitty-gritty about the proposals that you have outstanding or are about to create. Make sure to involve Delivery in this exercise.
Now more than ever, you need to know that you sell what you can deliver, on time and with decent margins. Double-check the probability assumptions, support Sales in pitches where you can. This goes for new business as well as for existing clients. More about that below…
2. Unplanned order book
Tidy this up. If you have any work that was sold but not planned yet, do what you can with your delivery team and PMs to move it to the next phase.
Unplanned order book = unplanned revenue = no short- to medium-term business planning.
This is the only way to ensure that all budgets will be consumed to the fullest. If you haven’t already done so, check all your budgets and their consumption on all current projects to find dormant revenue!
3. Planned order book
This is — or should be — your Business as Usual category. Plan as far out as you possibly can. To have a clear view of revenue, your project planning MUST contain all budgeted hours, when they are to be delivered and at what Sales Rate you will deliver them. Without these data points, you don’t have a revenue forecast.
For your fixed price projects, do remember that fixed price does not automatically mean “guaranteed revenue.” Check your contracts. Don’t recognize revenue on fixed projects or retainers until you have actually delivered the underlying hours.
4. Actual work
Provided you take all the measures in phase zero, you can be pretty certain that this revenue translates into cash.
Apart from getting a firm grip on your revenue forecast, there are other things you can do to make revenue more predictable. Talking to your clients is one — we’ll go into that in a moment.
Switching to a (well-contracted) retainer or subscription business model is another example. Some more on that in this interview with Matchstick Legal. I have also seen companies productizing their services to get more on point with value, black box costs, shorten sales cycles and eliminate hourly rate battles. I have even seen complete pivots from being a Strategy Consulting to an online training company. As businesses navigate the “new normal,” flexibility is imperative.
Stabilization step 3: Check your billable utilization rates and resource forecast
Utilization rates will significantly impact your next move to secure finances. And it’s the billable kind that you are after most!
Here is a list of important questions on this topic. If you can answer “Yes” to most or all of these, you’re headed in the right direction.
- Do we have billability targets for everyone?
- Have these targets been recently reviewed?
- Is every individual aware of — and working towards — their personal target?
- Do we have the planning tools in place to match project requirements to resource availability (resource forecasting)?
- Are we giving teams the tools they need to tune and tweak their planning so that they can speed up progress and maximize their own utilization?
- Are we leaving room for (tracked) non-billable time to avoid burnout?
- Has target attainment remained where it needs to be over the past weeks? If not, can we easily see where the gaps come from?
- Can we look forward and see future (billable) utilization for each person or department for the forthcoming weeks/months?
In the current state of business, project opportunities are scanter than usual for many. It’s more important than ever that you plan carefully for the projects on the horizon by making sure you’ll have a skilled workforce to leverage.
This will reduce the risks of costly bottlenecks and disappointed customers who won’t return because your staff is underprepared to fulfill promised services. There’s an expression for this: An ounce of prevention is worth a pound of cure.
Which brings up another hard-to-see but (still) significant issue for many services organizations: information silos, the silent business killers. They have the unfortunate tendency to create inaccuracies in your forecasts as a result of critical data sitting somewhere out of sight, totally unbeknownst to you.
Planning for the future is as much about using comprehensive professional services automation software as it is about building strategies. It inherently eliminates silos by virtue of the fact that it covers your business operations and workflow from end to end.
Stabilization step 4: Analyze your clients
To understand risks to your current revenues and medium-term growth, turn your attention to your clients. Wherever the relationship allows, strategize with them about how you can contribute to their changing circumstance. Make the rounds with them about future projects that had not yet reached a stage of concreteness to enter the sales funnel. Gleaning this information will allow you to project even further into the future and see how the coming year could take shape.
You may well encounter customers facing very serious challenges. If you can, help them out. Reprioritize or refocus your work for them if possible… But at the very least, don’t be caught by surprise if their business with you suddenly dwindles.
If you have larger clients with multiple projects, it’s extremely useful to have a portfolio view that will immediately tell you:
- The total volume of the historic and current business in dollars and capacity requirements
- The order book for the client, both unplanned and planned
- Any pipeline opportunities and their size, sales stage and timelines
- Planned and estimated future resource requirements for that client
- Client profitability overall and per project
Working toward creating stability in the future begins with analyses of your revenue, resources and clients. Diligent forecasting coupled with close communication with your teams and your customers will give you insights into the shape of the future so that you’re better prepared to make decisions with as much predictability as possible.
Ultimately, your business is only as strong as the strategies you develop, which are in turn only as good as the data you use. Choosing software that makes the vital (and real-time) data available to you will ensure that you can plan realistically and with confidence. If you don’t have good PSA software, now is the time to consider it as a part of your business stabilization strategy.