There were more firsts this year than any of us care to count. Some issues, however, have been around for a very long time and aren’t going anywhere. In fact, many are more important than ever before. Financial strategies and solutions, infrastructure, investor relations, and negotiations simply do not quarantine themselves, even during a global pandemic. Rather, the pandemic forced us to be even more diligent when it comes not only to our physical health, but also to our financial health.
Before we start crunching the numbers of 2021, we thought it was a good time to reflect back on the topics we found most crucial in 2020. Click below for some refreshers, as you prepare for the new year:
Getting to Day Zero: The importance of “Day Zero” being top of mind at the beginning of each month for proactive organizations.
Help Investors Spend Their Money: How the amount of money in the hands of Private Equity and Venture Capital firms substantially increased over recent years – the total money raised in 2008 was $392 billion as compared to $740 billion raised in 2019.
Essential Infrastructure: The right infrastructure is critical to generate data about your business during the due diligence process with potential investors.
Negotiate from a Position of Knowledge: Valuation is the value an investor would place on your company if you were to seek investment funding. Your company can be valued based on what someone will pay for it or what the market will bear.
Times Have Changed, or Have They?: With all of the year’s changes, one thing that hasn’t changed is the core fundamentals of business. In order to survive (pre- or post-pandemic), a business must have a product or service that solves a problem and can financially make a profit.
Oh No Not Again: The importance of having a clear vision and financial roadmap for your business through having the right infrastructure in place, including an Enterprise Resource Plan, CRM, General Ledger, Cash, HR System, and Payments.
Stay Safe: Leaders must set priorities that have measurable results with employees, even if the employee is working from home or transitioning back to the office.
If you have any questions about these topics or how to start your new year on the right financial foot, we can help. Let’s set up a time to talk! Use this link to my calendar to choose the best time for your free 30-minute consultation.
How a Pre-Pandemic Shift Left Companies Vulnerable
At the Intersection of Financial Infrastructure and a Global Pandemic
How a Pre-Pandemic Shift Left Companies Vulnerable
Pre-pandemic (do we even remember that time?), the investment world had experienced a huge shift. Unfortunately, this shift did not help prepare companies or investors for what was to come. Priorities had shifted from a company’s sustainability and infrastructure to avenues of increasing revenue as quickly as possible. However, sustainability and infrastructure were exactly what was needed most during a global pandemic.
What Supply and Demand?
Everything we had learned in our earliest economics classes about supply and demand seemed to be irrelevant. I remember those classes –training my brain to think of opposites – supply goes up, demand goes down, and vice versa. However, that concept no longer applied to venture capital and private equity firms. The number of firms that were chasing deals with buckets of money created a huge supply of investor dollars. But the number of successful high–growth companies to invest those dollars did not increase at the same pace.
The result? Investment firms began expanding their reach. They started to invest not only in the usual entrepreneurial high-growth companies, but also in companies that would have typically received funds through stock sales in the public markets or through traditional bank financing. These companies needed to move into the investment firm world to fill the gap that had resulted in too much money and not enough companies. Additionally, investment firms began relaxing the guidelines associated with the due diligence process.
These changes forced a decline in the regulatory compliance surrounding the movement of investment dollars, financial audits, and other financial items. With the focus almost exclusively on top–line revenue growth, there just didn’t seem to be a need for them. Further, companies with contracts that brought in recurring revenue were trading in the investment world based on multiples of revenue (some as high as ten times what their revenue was currently).
A Lack of Infrastructure Meets a Global Pandemic
Enter COVID-19. With so much time and attention previously focused on quick revenue generation, many companies lost the infrastructure to produce the quality financial data and reports needed to make informed decisions for ensuring sustainability. However, infrastructure and sustainability were what was needed to survive the pandemic.
When the pandemic hit, every stakeholder (board members, investors, CEOs) immediately shifted their focus to cash flow analysis and sustainability. Chief Financial Officers have all noted that their interaction with other managers, officers, directors, and investors increased literally overnight. While no one could have predicted the full cash impact of the pandemic; in particular, the need for short-term cash flow, they could have been better equipped. The companies best prepared to analyze the situation were the ones that had the appropriate level of infrastructure prior to the pandemic. The stakeholders wanted to know if the entity would survive. While most had the ability to enter ‘survival mode,’ one has little to do with the other. Survival mode is simply not sustainable for any extended period … in any situation.
The pandemic taught us once again that knowledge is power. Infrastructure is crucial when analyzing different scenarios to make decisions quickly. Chief Financial Officers should take advantage of the temporary dynamic brought on by the pandemic. Using this time to get the right type of infrastructure in place will help prepare them to make critical decisions at any moment.
There are many companies that were forced to make difficult decisions to lay off employees, not renew leases, discontinue software development, or even close their doors for good. Unfortunately, most had to make these decisions without the confidence that they possessed all of the information. Full knowledge is mandatory for a sustainable future and for the success of any company overall.
By leading from a position of knowledge, which comes from having the right infrastructure, companies will have an edge over others whose directors or CFOs are blindly making decisions. What does that type of infrastructure mean? We’ve talked about it before – most recently in Oh No Not Again – but essentially it means having an Enterprise Resource Plan, CRM, General Ledger, Cash, HR System, and Payments. A clear vision and financial roadmap on how to achieve that vision, along with cash and a strong general ledger, are the foundation of an essential infrastructure.