How has Coronavirus changed business spending - and when will the new normal get here? Finance professionals weigh in

Profile picture for user jreed By Jon Reed April 29, 2020
Summary:
How are finance teams and leaders adapting to the new abnormal? In this diginomica exclusive, we go behind the data of a new Sage Intacct survey of financial professionals. There were surprises - and notable industry variations.

time-for-change

We find ourselves in an elusively unpredictable time, where data is just another conundrum. Past certainties and prior trends are of limited use. What could we use more of? Fresh data on what businesses are now facing.

The office of the CFO is at the front of that request line. Today, Sage Intacct releases the results of a new survey of accounting and finance professionals that speaks to our new spending realities - and what lies ahead.

The survey data, gathered from about 400 accounting and finance professionals in the SMB market segment, confirms some grim spending truths - but it contains some arguably upbeat data as well. For the lead question, Sage Intacct asked respondents: "What are the top three pressing things on your mind today?" The respondents said:

  • Revenue impacts - 70 percent
  • Cash flow and funding - 62 percent
  • Continuing operations (using social distancing guidelines) - 44 percent

Then the follow-on: "Which of these financial actions are you considering now to respond to the current business environment caused by the coronavirus?" The responses:

  • Reducing or containing costs - 75 percent
  • Redoing budgets or revenue plans - 57 percent

Finance priorities - variations by industry and company size

Last week, I delved further into the numbers with the Sage Intacct team, via a Zoom call. After the call, Sage Intacct's James Tilk, Senior Product Marketing Manager, sent me an interesting detail on that first question:

While most businesses rated revenue and cash flow impacts as their top concerns, businesses with more than 1000 employees ranked workforce reductions ahead of cash flow concerns.

Yet layoffs were not the universal preoccupation I thought they might be. When asked if they had either completed layoffs, or were planning to complete layoffs in the next 3-6 months, 64 percent said, "None, our workforce will remain the same." Only 11 percent were planning to lay off more than 25 percent of their workforce.

Of course, industry variation is a given in this market; Sage Intacct breaks that out in the infographic. Tilk sent me this factoid also:

Government, financial services and software had the lowest projected layoffs across industries.

Projected revenue impact for this quarter was not one of the upbeat aspects of the survey:

 

Sage Intacct - CFO spending COVID
(COVID finance spending)

From Finance Sentiment in a COVID World infographic - available on SageIntacct.com.

As expected, the hospitality industry is taking the big shutdown hit, with 20 percent facing a total shutdown. I asked the Sage Intacct team: did any of this survey data surprise you? Tilk said:

For me, kind of the revenue hit. Professional services - the fact that they reported an uptick, or even the government spending up... I guess I could see some services wanting to increase spending. Obviously, shopping on Amazon is up right now, but I thought people would cut back on services. I could see services remaining flat - if you still need to get taxes done, or you still need legal services done.

Software spending priorities - video, security, and cloud

One reason for the services uptick could be temporary: organizations scrambling to redo and renegotiate all types of contracts. But that leads into the question: what are finance teams considering spending money on? Short answer: purchasing or expanding video web conferencing (31 percent), installing VPNs or security software for remote access (24 percent), and purchasing or expanding the use of cloud-based systems for accounting, HR, CRM, etc. (21 percent).

The Sage Intacct team sent me more industry breakdowns:

  • For financial actions, professional services and NFP rated highest considering reducing costs (40% of responses), with government the lowest  (20%).
  • For re-doing budgets, government rated that highest (40%), with real estate the lowest (25%).
  • Paycheck Protection Program (PPP) – Construction/ Real Estate and Hospitality were the most likely to apply for this program (70%), with Financial Services and Government the least (<10%, 0%).

The PPP stats from this survey pointed to the outsized impact on small businesses:

PPP –across the board -60% of employers (less than 50 employees, 50-100,100-250,250-500) indicated they would be applying for the program, while only 20% of employers (with 500-1000 and 1000+ employees) indicated they would.

The hospitality industry had the greatest need for paycheck protection:

Financial services was the only industry across the board seeking less than $1M, and 30% of hospitality respondents were seeking $5M or more

My take

It's no surprise that finance teams are starting with the eminently practical urgency of cash flow management and redoing budgets.  But this puts the focus on the tools in use - especially given the remote work imperative.

If there's one thing this pandemic has underscored, it's the value of trusted - and remotely accessible - financial and planning systems. Paper-based processes and re-circulated spreadsheets were already problematic. When the office itself is off limits, they are soul-grinders. The Sage Intacct team found this in their research also:

When it comes to challenges, paper-based processes are still on top of the list. Getting mail, obtaining checks, billing, AP and payroll were listed as top challenges.

For now, you adapt. But the savvier finance teams will look for more permanent, pandemic-proof solutions to these workflow headaches as well. During our call, Sage Intacct's Director of Corporate Communications, Peter Olson, pointed out that this change extends beyond products to technology services:

This has been the wake up call that we need to re-evaluate our technology stack to be sustainable, especially if there's future waves of this [pandemic], or other areas that cause disruption. I know we've had conversations with customers that have also done very specific projects that come up in the services area around COVID-19, and healthcare-related topics that wouldn't have been on the docket before.

So how long is the downturn going to last? Sage Intacct found the outlook was heavily influenced by industry:

  • For when the crisis will end, healthcare was the most optimistic, with 60% saying it will end in Q3 (Jul-Sept) 2020. Accounting was the least optimistic, with 35% saying 2021.
  • For the recession, financial services was the most optimistic, with 60% saying the recession will last 6 months or less. Government was most pessimistic, with 70% responding we will be in a recession longer than a year.

To me, those industry variations illustrate an uncomfortable point: there is so much we don't know, and our outlook may be unduly influenced by our own circumstances. That certainly makes it tough for accurate planning. Example: how many CFOs are planning - or expecting - a second wave of the pandemic? How do you balance that with state-specific plans for re-opening some facilities?

At diginomica, we are not in the predictions business whatsoever. But, in the throes of all our interviews and briefings, we've come to something of a consensus that whatever the world looks like, it won't be a return to the normal we knew. It will be more permanently digital, more remote-work-fluid, less travel-dependent, and much more healthcare-conscious in how workforces are managed.

As always with such data, I am left wanting more. I told the Sage Intacct team of my desire to better understand cloud investment priorities. Putting HR, Finance, and CRM in the same bucket raises questions on where the precise focus of such spending might be. I believe many companies are thinking less in terms of "I need HR or CRM," and more in terms of process automation, shifting to areas of consumer demand, and overcoming logistical hurdles to serving customers and suppliers. How that will translate into software purchases is something we'd all like to understand better.

I do not assume that any incumbent vendor, on-premise or cloud, is in the driver's seat here. Relationships will be tested. Those service providers that go the extra mile to make a difference or, in some cases, sacrifice their own payment terms, will hold a lot of sway.

For this type of analysis, it's still early days. Even the way Sage Intacct phrased that software question, around "as your business stabilizes" and "what products would you consider," acknowledges that for now, much of this type of software spending remains a bit conceptual. Understandably so. For now, we stabilize, adapt - and look forward to more of this type of data.

Image credit - Feature image - time for change © vege - Fotolia.com. Screen shots from the Sage Intacct "Finance sentiment in a COVID world" infographic used with express permission and link to the full infographic.

Disclosure - Sage Intacct is a diginomica premier partner.