It is remarkable how quickly things can change. During NSCA’s 22nd annual Business & Leadership Conference (BLC), held February 26 to 28, the 400 integration-company professionals gathered in Dallas TX were brimming with confidence. The industry was growing, and many of the business strategies discussed related to managing growth.
Within a couple of weeks, however, the mood of and the outlook for the integration market was drastically altered as our economy, health and culture were besieged by the novel coronavirus (COVID-19) pandemic. Projects were cancelled or put on hold, pipelines dried up and revenue streams dwindled. As a result, business-strategy focuses shifted from growth mode to survival mode.
Even as I write this, the decisions that integrators face and the pieces of information necessary to make those decisions are changing by the hour due to business challenges related to COVID-19. To help integration-company leaders make those decisions, the NSCA team—a group that includes staff, board members and business partners—has devoted itself to creating, gathering and vetting resources to assist the AV-integration community. We even created a “Business Continuity” landing page on NSCA’s website where AV integrators can find all our resources related to keeping their businesses up and running during a crisis.
Much of the advice and information we’re relaying to NSCA members relates to leveraging government assistance; other resources are more evergreen. One important lesson from this crisis for the AV-integration community is that having a “business-continuity” strategy should be continual focus, as opposed to being reactionary.
What follows are few business-continuity resources and lessons learned.
Cash Flow & Access To Other Forms Of Liquidity
We have continuously emphasized the importance of available and unrestricted cash to withstand this crisis (or any other). Preparing a declining-revenue forecast model would allow you to back into the cash-burn rates and give you actual data to take to your lenders and vendors. It’s also good practice to look at other ways to extend liquidity through trade financing.
Knowing how much cash you need—and when you need it—will be paramount to staying in business for the duration of a crisis, as well as for the recovery period that follows.
Recalibrating Company Projections
Use data, research, creativity and accurate information from your client base to make “now” versus “three months from now” projections. As you look over your backlog, work-in-progress (WIP) reports, accounts receivable (AR) and days-sales-outstanding (DSO) models, you have to establish the most accurate expected-collection dates possible. Set a target date and determine if you will be able to restore employment to pre-crisis levels.
If you believe that revenue will be at 60-percent normalized levels, for example, then full employment is unrealistic. Does that mean you take a deeper cut sooner? That decision will drive the funding option that’s best for your situation.
“Although it’s up to you to determine which expenses are essential, we recommend looking carefully at retaining cash if discretionary expenses don’t have revenue or cost savings attached.”
Non-Essential Expense Reduction
The NSCA members who best understand this process are the same ones who suffered the most in the Great Recession of 2008 and 2009. Some of today’s most financially sound companies were the ones hit hardest back then. They’ve maintained the conservative, lean spending habits that they learned during the last major economic downturn.
Although it’s up to you to determine which expenses are essential, we recommend looking carefully at retaining cash if discretionary expenses don’t have revenue or cost savings attached. Areas to look at are through your insurance agent and coverage for workers’ compensation and general liability, which is based on payroll and overall revenue.
The Impact Of Recurring Revenue
AV integrators who have a larger portion of total revenue composed of recurring revenue will be better positioned to weather a downturn. However, in an economic crisis such as COVID-19, we have to tend to our recurring business very carefully. Many people believe that managed-service agreements are an easy target for immediate expense reduction. Get out ahead of this as soon as possible to reinforce your value in providing these services. If you generate revenue exclusively from projects, you could see an ugly revenue decline as you eat through contract backlog. This will likely be followed by a slow slog back to pre-crisis revenues.
Conducting A Financial ‘Stress Test’
Before you make drastic payroll cuts, it’s important to take a step back and understand the true pulse of the situation. We recommend conducting a financial “stress test” for your company. Essentially, this helps you understand what your company can handle and what it cannot handle. Work with NSCA to review the following to determine liquidity and confidence:
- gross profit
- net profit
- accounts receivable
- accounts payable
- inventory levels
Improving Processes Is Key
Believe it or not, a crisis is a good time to recognize the strengths and weaknesses of your business. Look at all aspects of your business process to improve efficiencies. Use NSCA Essentials Library, benchmarks and metrics to assist in these areas.
Tuning Into Your Supply Chain
The COVID-19 pandemic is an example of a far-reaching crisis that impacts the supply chain. During any crisis, AV-integration companies have to pay close attention to their ability to obtain projects. Continue to look at supply-chain demands and issues. Work with key vendors to be prepared for when projects start up again.
The COVID-19 pandemic has provided a strong reminder of how committed AV integrators are in helping one another. The resources that NSCA shares come from your peers. It is an extension of the networking at BLC, and it continues in an effort to support the AV-integrator community through this challenge.
Please reach out to NSCA for more details. We are here to serve.