Economic disruptions, which often elicit downturns or pause in activity for many businesses, are fairly inevitable during the lifetime of a small- to medium-sized business. While leadership may prepare for unknown risks and potential problems within their business models, oftentimes unforeseen crises can take a heavy toll.
The severity of economic disruptions caused by the COVID-19 pandemic has created a unique demand for financial assistance in such businesses. Impacts to sales and cash flow, along with maintaining functions running under the “new normal,” is at the forefront of interest for business leaders; and finance and accounting professionals have become essential to managing business losses and planning for the future.
Sage Intacct surveyed nearly 400 finance and accounting professionals for insights on the impact of COVID-19 on SMBs and how they are responding to the crisis – including how they are planning for the future, protecting staff and utilizing government funding. While responses across industries differed slightly, all are working to take measures that immediately protect themselves and their employees.
Financial Planning Around the Current Reality
Proper planning for what’s to come requires accounting and finance professionals in small- and medium-sized businesses to look at initial losses and anticipate where more losses may occur in the long-term. Within Sage Intacct’s survey, more than a third (37%) of finance leaders predicted a decrease of up to 25% of their revenue, with one-fifth of business professionals expecting revenue hits of more than 50% - and the possibility of a complete shutdown.
Managing these potential losses and avoiding a complete hemorrhage of funds is one of the main focal areas right now for SMBs. Finance and accounting teams are being asked to look into the deepest parts of the books to reduce costs (75%) or revise wider revenue protections (57%), with a focus on budget planning for the future.
For SMBs, staff retention is especially important since hiring new talent in the aftermath of this crisis may be more burdensome than protecting loyal employees, due to the inherent cost of onboarding. Nearly 64% of respondents expressed they are hopeful they will not have to lay off staff permanently over the next 3-6 months. Of course, employees are essential to business functions at the most basic level, so furloughing and laying off staff has naturally become a last resort.
Utilizing the Paycheck Protection Program (PPP) to Assist with Immediate Cashflow
Government intervention, while not always the first option to be pursued, has become a necessary solution during COVID-19 – with most resorting to the federal Paycheck Protection Program. As bottom lines are disrupted, the loan, designed to mitigate the economic impact on companies with 500 employees or less, has become increasingly important for businesses to utilize.
Accountants are urging their respective businesses to use the PPP to provide them with a safety net of funds beyond emergency savings. Most significantly, these loans will be forgiven if they are used to keep all employees on payroll for eight weeks and if any additional funds are used specifically for rent, mortgage interest, or utilities. Therefore, many small- and medium-sized businesses can use the loan in the short-term without long-term handicaps.
Of all industries, construction/real estate and hospitality were among the most likely to apply for this program, with financial services and government the least likely to apply. Not surprisingly, as one of the hardest hit industries, nearly one-third of the hospitality firms responding to the survey had requested PPP loans in excess of $5 million.
These businesses must now wait to seek further guidance from the Treasury and the SBA on PPP loan forgiveness, making it more important than ever for C-Suite executives to work closely with their accountants. During times of turmoil like this, an accountant has never been more important, and never more revered as a trusted financial advisor.
Planning for the Future
The unexpected downtime COVID-19 has brought businesses encourages time to plan for the future, before revenue picks back up again. While it may be challenging to look ahead when so much is left unknown, there are several factors that can be acknowledged and used for businesses to thrive in what will become the “new normal.” As a result, many finance and accounting professionals are preparing to invest in technological solutions to enable greater productivity and security for a more remote and diverse workforce.
Almost one third (31%) of finance and accounting professionals are looking to increase online conferencing options, 24% are planning on installing VPN and other remote working security enhancements, and 21% plan to increase the use of cloud-based accounting solutions. COVID-19 has proven that the working relationship between CPAs and small- to medium-sized business owners needs to be consistent, thorough and strong, which is why investing in modern technology has become a priority. Streamlined communications and cloud accounting technology that allow both the company executives and accountant to view the same data assures fewer hiccups in financial processes and could certainly help keep a business’ bottom line above water. Cloud-based accounting solutions can also help small businesses manage monetary expectations while providing improved data accessibility, viewability, and instantaneous updates.
These technological advancements provide professionals with real-time information on key performance indicators, allowing executives deeper and more integrated knowledge that helps them to react quickly and effectively during a crisis.
Although the ongoing crisis seems unyielding, mitigating the impact of an economic downturn through planning, reducing business costs, revising revenue protections, utilizing loans, and investing in the future can help businesses overcome their struggles.
Sage Intacct has prepared a related Infographic titled, 'Finance sentiment in a COVID world: Reactions to the crisis' which is available free from this Insightful Accountant download site.
About the Author:
Rich Reimer, VP of Industry Marketing at Sage Intacct
Rich Reimer_VP at Sage-Intacct
Rich Reimer is Vice President of Industry Marketing for Sage Intacct, an award-winning cloud accounting and financial management solution that is part of Sage Business Cloud. Rich has more than 20 years of management and marketing experience with startups to Fortune 500 companies, including consumer, enterprise SaaS, and enterprise infrastructure businesses. In his current role, he helps finance leaders at small- and medium-sized businesses across various industries leverage technology to be more agile and drive improved decisions.