Accounting the cost of recession

Crossing the chasm or staring into the abyss? Unfortunately for accountancy and ERP software resellers, the onset of a global recession makes the latter a likely possibility.

The recession of the early 90s and post dotcom downturn show that deferral rates are set to rocket and resellers stuck with commodity solutions need to act fast as the sales pipeline evaporates. In tough times up-selling to the installed base is a proven strategy it is far easier to sell to existing customers. But what can resellers offer when finance directors want to freeze corporate spend?  Neil Robertson, CEO of e-procurement software provider, Compleat Software Limited, explains how accountancy and ERP resellers need to diversify their products to survive the recession.

History Lesson
Despite the ongoing economic turmoil, the majority of IT resellers still appear to have a good degree of business confidence. While some customers are beginning to defer purchases for a couple of months, there is no sign, so far, of a major downturn akin to 1990.

Unfortunately, as anyone who experienced the last major recession can attest, the current situation is akin to the Indian summer experienced during 1989. Recession is a self-fulfilling prophecy: current low levels of deferral will inevitably escalate as business confidence drops and financial directors look to impose far greater financial control.

Within a few months, a large number of potential customers will have imposed a complete capital expenditure ban; and all major purchases will need board level sanction that will only be granted if the investment can deliver rapid business value.

Unfortunately for those resellers that are selling accountancy and ERP solutions, a large number of organisations will be able to survive perfectly well with existing systems especially if their planned growth plans are likely to be curtailed. The result will be far higher levels of deferrals in this area of the market as organisations focus instead on investments that can provide immediate ROI.

Financial Control
Long term resellers are already familiar with and recognise the signs of change even if the sales pipeline still looks strong. Across every vertical market experienced financial directors are attempting to impose far more control over spend. The majority recognise the poor processes in place across UK companies for controlling budgeted spend and the basic process of reconciling purchase orders with delivery notes and invoices. The urgent requirements for careful financial management is constrained by ineffective spend controls.

They are also aware that in a recession organisations and individuals become increasingly desperate. This typically leads to sharp practice ranging from secondary invoicing in an attempt to get the same invoice paid twice and supplier creep, whereby an additional 5% or 10% is added to the invoice. Those organisations with poor financial processes are highly vulnerable to such tactics, adding untenable cost at a time when tight control over spend is key.

Indeed, it is in recognition of endemic poor financial control that many organisations have to resort to extreme tactics. With no visibility of committed expenses until the invoice arrives, the only way to wrest back control is to impose a complete expenditure freeze.

As a result, whilst the market appears currently optimistic, the outlook is less positive. In the last recession, resellers in this sector saw sales plummet by 40% within a matter of six months. And there are very, very few companies that can survive a revenue drop of that significance without falling out of profitability and into loss.

The resultant loss of confidence will force a growing number of customers and prospects to rethink investment plans. Deferrals will increase and the reseller community will see a downturn in the sales pipeline. And while resellers typically have a good relationship with the installed base, without a compelling ROI story to offer the board, there is no way of reversing the recessional trend.

Extending Expertise
The future is looking bleak for those selling only accountancy and ERP solutions.  Yet how many resellers are really in a position to diversify into less vulnerable software products that are more recession proof?  Certainly now is probably not the time to be moving into a completely new product area. Such a shift requires massive investment in product and expertise at a time when retaining cash is key. And without that investment, the strategy is extremely likely to fail.

However, it is possible to leverage existing skills and expertise by adding complementary solutions to the portfolio that, critically, provide the reseller with a compelling reason to contact the existing customer base by far the easiest and lowest cost sell.

Indeed, resellers in this sector are actually extremely well placed to exploit customers growing demands for improved financial control by expanding existing expertise and financial knowledge into e-procurement.

With only a small penetration into the SME marketplace, e-procurement solutions that are tightly integrated with the core ERP packages in the market, provide resellers with an extremely timely opportunity. The additional skills and product knowledge required are small most organisations can add the e-procurement knowledge and basic product training within a day. But the opportunities are significant especially within the existing customer base.

By extending the product portfolio with an e-procurement solution, resellers have a compelling new and highly relevant story for the existing customer base. With short deployment times, resellers can now offer customers fast track ROI, total visibility of committed spend, full budget control and strong financial processes that deliver complete spend control, whilst reducing the risk of secondary invoicing, supplier creep and employee fraud. Taking this approach, resellers can address the top priority for the majority of customers: conserving cash, managing spend and ensuring investment is spent wisely and well.

Risk/Reward
A proactive attitude will be key to sustaining business during the recession. For resellers it is essential to ensure the software portfolio includes products that present a compelling message to customers, that meet their current areas of pain and deliver rapid ROI.

But the software must fit neatly into the existing skills, experience and market knowledge; resellers simply cannot take the risk today of investing too much cash or over diversifying. It is by leveraging both existing skills and the loyal customer base that resellers can reinvigorate the sales pipeline without exposing the business to unmanageable risk.