Rafael Cassis:

Hi everyone. I’m the senior manager of the Sage Accounts Solutions group at Sage in the US. I’ve have over 15 years of experience in finance and accounting consulting. I’ll hand it back to you Duke.

Duke Chung:

Great. Rafael, thank you. And I want to say first and foremost, Covid 19 is not only a healthcare crisis, but it’s impacting our economy very significantly.  We think this topic is very relevant.  Today we’re going to discuss how to streamline costs and expenses to preserve cash for companies and ultimately strengthen your financial position through a period like this. We’ve come with a lot of data.

Duke Chung:

Let’s jump in. We all know we’re deep in this Covid 19 impact. I wouldn’t say it’s affected every business, but it’s certainly affected many businesses. It’s a very challenging, very disheartening time.  We’re thinking about our employees working from home.  How do we balance the needs of our employees against the budget and against our resources?

Duke Chung:

If you look back a few decades there hasn’t been anything quite like what we’ve seen.  When you look at the unemployment rates and the claims that are filed just within the last four to six weeks. The impact of this on our economy is astounding.  Number one, how do our businesses survive ? And number two, what are the opportunities that you may be able to see through this process?

Duke Chung:

So first and foremost, you have to think about your business in a way you’ve never thought about it before.  Is the business model still relevant?  Could processes be improved? It’s a trying time – can you meet the moment with creativity, resourcefulllness, and resilience?

Duke Chung:

I’ve personally been through that in my prior companies. And we have seen many stories of great successes through 2008 and 2009 and also 2001. Let me turn this over to the panel and let’s start with the first question. I know Covid 19 is really on everyone’s minds right now.  How has Covid 19 impacted the financial positions of businesses today?

Iris Yen:

There are honestly very few businesses we believe that are going to see net neutral financial impact. Most businesses we’re seeing are anywhere from 25% to sometimes very scary enough, 90%+ revenue impact. An example of that would be our industry, the travel industry. So with these few exception of potentially remote workforce collaboration software like zoom, potentially delivery services, I’d say across the board, most businesses are going to be impacted on the revenue side quite substantially. What this means is, we started 2020 sort of in the economy and a very high growth phase and generally fairly strong and very suddenly we’re seeing a very deep shock to the system and it’s going to really test the fundamentals of every business from the startup space, all the way to large businesses. And the implication of that is conserving cash and preserving your runway is going to become the top concern for all businesses. If it isn’t already, it really should be. Because the hardest part I think of this current crisis is it’s really unknown when that business will return back to normal.

Rafael Cassis:

And do you understand what your financial position actually looks like? Do you have the tools in place? You may have thought you were healthy, you may not have the technology to really understand what your business should look like.

Duke Chung:

We all know we’re thinking about reducing costs… what should one think about, especially when the impacts of this have been so fast and drastic?  When you need to shift your operating costs, what should one focus on first?

Iris Yen:

So, because we are a corporate travel startup, in some ways we were really at the vanguard of seeing what I consider very scary drops.  It’s sort of skydiving without a parachute. In a very short amount of time, we saw our revenues drop very significantly. So the first thing is, it’s scary. It’s really scary. but you know we sort of had to take a step back, take a deep breath and plan. I think planning is really important to keeping calm. The first thing I would say is you need to really have a good, as Raphael mentioned, a really good fundamental understanding of your cashflow and your cash position. And that starts with scenario planning. So what I would recommend is, is creating a matrix where you sort of have, revenue impact.

Iris Yen:

So let’s say you model out from anywhere from 25% to 75% impact. And this is obviously going to vary depending on your industry. And then on the other axis would be when do you expect your business to return to normal? Again, very sadly for us in a travel industry, our business impact was significant and substantial. And the return to business as normal is quite uncertain. And I think the Airbnb CEO, Brian Chesney, said it well when he said that, when travel returns, it’s still probably going to be very different from what we’ve traditionally seen it to be. So I would create multiple scenarios and really understand how much cash do you need to sustain your position. The second would be to take a real inventory of all of your expenses. So what we did is we pulled all of our expenses from the last 12 months and it sort of sorted it and categorized it into multiple categories. So we would tag it by whether it’s variable or fixed cost. The second category would be whether it’s mission critical or what may be more discretionary or nonessential. And then you can also categorize it, a third category by department or type of cost.

Iris Yen:

The first category of costs are low hanging fruit – costs that are variable, discretionary and doesn’t have substantial business impact. And so those would be good areas to start looking into, sort of trimming back and scaling down. So, example, discretionary employment, if it’s like parking and commuter benefits, well, no one’s going to work or at least not physically. So those may be an area to cut back on. Another area is if your business isn’t currently in a big growth phase, you may look at maybe scaling back on some marketing and PR spend as well as recruiting spend and events, conferences, these tend to have pretty large budgets. And then the third category would be potentially some software licenses that you can streamline.

Rafael Cassis:

Those are some great points. From Mercedes’ perspective, we actually mitigated a lot of costs because of traveling.  That, in itself, globally cuts out a lot of costs. You also want to look at things like mitigating costs from your vendors or bank loans. Talk to them, and see if those can be deferred.

Rafael Cassis:

And as well as pre the prerequisite of all this, in my opinion, is to, to re analyze your business. You’ve got to look at it holistically and this is a topic to discuss later. And then the final questions of Dr. Jordan Peterson talking about clean your room. You have to really reevaluate where these businesses, where these particular areas of your business may be costing a bit more than you would than you normally thought because you didn’t, we weren’t really tracking as well before crisis has happened.  That’s why you have to be aligned with the CPA to help you find these particular areas where you may not have the expertise to look at that.

Duke Chung:

What’s different about controlling costs in today’s environment with Covid 19’s impact?

Iris Yen:

I liken it to the short term shock. It’s using our analogy, we were all on a beach, it was beautiful day and then suddenly you were thrown into the pool. It’s a very cold pool. Once you sort of get over that initial shock and get your bearings, do you need to tread water to figure out how to get yourself back to the beach? Recovery could be actually much longer than anticipated. So that, even when we sort of come out of shelter in place and lockdown, business as usual may not be what we were accustomed to even, two months ago. It’s only been two months. Post 9/11, which is the closest analog to the current recession, it took about two to three years for travel to resume to the levels at which it was prior to 9/11.

Iris Yen:

So, if you’re talking about business as usual, what’s your baseline? You’re talking about sort of, January, 2020, that can take a while. So what the implication for that is in the short term, do as much as you can to sustain yourself. I, the PPP program, all of the other SBA loans that are being offered, like the economic injury disaster loan as well as various SBA loans that are available from city and state governments. Those are all absolutely things that all businesses should be looking into to sort of tide you over. But I really think of those more like emergency gas money.

Iris Yen:

It sort of gets you home, but once you’re home, how do you continue to keep the lights on and food on the table? That’s where you have to be. This, this mindset and discipline of cost control has to be a prevailing mindset I think for a period of time. And when you start to see things pick up, I would still be very thoughtful and, and gradual about adding more costs, to your business. Because again, I think a full recovery may actually take some more time once we go to an economic downturn, which it looks like it’s increasingly likely to be the case.

Rafael Cassis:

I agree too. Realistically it could be 18 months.  Financial modeling is really important to look at different types of scenarios.  We don’t just need a pandemic plan A, but plan B, C and D cause things can change and pivot so much. This is going to be a marathon. It’s not going to be a quick fix.

Duke Chung:

What can you guys share around examples of expense categories that companies should think about today to adjust and, and which ones are easier to adjust and which ones are more difficult to adjust?

Iris Yen:

Yeah. So going back to the sort of expense categorization, the hardest expenses to adjust are the ones that are very fixed.  A long-term lease is a good example. Most commercial leases are anywhere from 5 to 10 years, sometimes more.  You’re really locked in for the long term. And in fact, I can share, we’re going through that right now.  Your negotiation position really depends a lot on your outcome that you desire, but also on your cash position. If you have just a few months left on your lease, you can talk to your landlord about potentially doing an early termination. I will say most landlords are, our landlord is, has been very fantastic and very accommodating. Some landlords are not so much, but if that’s not an option, look at rent abatement or rent deferrals so you can pay a portion now and defer that to later.

Iris Yen:

Some other companies I know are actually just saying, you know what, I’ve got more than two months left on my lease, but I don’t see us going back necessarily to use the space and, or my team is, is much smaller. We don’t need the amount of space we have. Just take my security deposit, treat that as an early termination penalty and let me just get out. So, but leases generally are a pretty big expense item for most businesses. So anything you can do to free up cash flow, working alongside with your landlord of course would be good. I will say other contracts that I’ve been reviewing, one of the things that I’ve been carefully studying is, is the various cancellation terms and policy. Some contracts will have  what we call force majure — a fancy legal term for an act of God that doesn’t enable you to fulfill your obligations.

Iris Yen:

A great example of that would be if you are a events venue provider. Well you literally cannot fulfill your obligations under contract. You cannot host events there, right? So that may be an avenue for you to work with any clients to say I cannot do the obligations that I contracted for. It is completely not my fault. Right? I’ve heard of people just getting really creative with contracts and figuring out ways to potentially defer the payments or change it to another date. So just, just being really thoughtful and creative and, and hopefully in my experience has been that most partners and vendors we’ve reached out to, and I’m usually just, very transparent about our situation. They, they’ve been very helpful and understanding. And so I think everyone sort of has a sense that we’re in this together. Unlike the 2008 recession where some people felt like there was, part of the recession was due to by financial services companies. So there was a little bit more of that you should have managed a business better. Nobody really has that mentality because this truly is, is this one is one in like a lifetime kind of crazy like black Swan event that hopefully could ever have foreseen or imagined.

Duke Chung:

Not only is this really about managing your business and the financial implications, but also the employees.  Your employees are going through very difficult, very challenging, very disheartening times.  How does a company balance what our employees need in a crisis, with business continuity?

Iris Yen:

Yeah. sure. So, two things I would share just,

Iris Yen:

You know, personally that we’ve done at TravelBank and I think has been hugely beneficial and helpful to me as a mother working from home with two young children is first just a general understanding and a culture of flexibility. We have a lot of trust in our organization that people will get their tasks done. But the timelines, I think we all acknowledged have to be more fluid and more flexible now because, many of us are at home potentially managing young children that are, distance learning, which for very young children is, is not really quite feasible. And other folks might have elderly parents or neighbors that they’re taking care of. This anxiety and the news is often very sobering and depressing to read.

Iris Yen:

So just having that general understanding and empathy, I think goes a long way. The other thing that we’ve done at TravelBank, which I think has been hugely helpful to our employees and we’ve heard great feedback from our customers as well, is we shifted our company to focus on expense. And in particular with our expense product, we rolled out a work from home expense policy for us as a company. So it’s things like, even though we are in technology, we’re a software company, many of us, all we need is a laptop and we can get working anywhere. But that mindset of working from home, you can’t just assume that just because I have a laptop, that I have the right equipment, I may not have a desk that I can work from home. I mean I have monitors or mouse or whatever.

Iris Yen:

And so we adopted a work from home policy to help employees sort of manage that transition because, so again, it happened very, very quickly in a very short amount of time. San Francisco was shut down. Our company made the decision to also extend that work from home to protect our employees. And I think a lot of companies are facing the same thing. So anything I think in this environment, even if it’s just, Hey, you can expense your lunch because we know it’s, you don’t see your colleagues, it’s already kind of sad and we do virtual lunch hours and, and happy hours just so we can maintain the team bonds that we’ve had. I think those, it may seem, like small steps but they go a long way.

Rafael Cassis:

We’ve been helped by mindfulness meditation, going outside, and getting creative routines. We partnered with Headspace, which is a meditation app, and that really has allowed for, many of the employees to make sure that’s part of their routine.