It takes more than great technology to be a tech company—it takes grit and financial fortitude.
As the tech industry emerges from the throes of economic instability, its outlook seems bright. This year, research and advisory company Forrester predicts that tech spending will be strong. So strong, in fact, that it will likely outperform the overall economy. For example, the IT trade association CompTIA says that 20% of IT leaders are aggressively pursuing AI integration within their companies.
No matter what the future has in store for tech companies, it’s critical that their CEOs are ready to pivot to confidently lead through financial highs and financial lows. This is the only way to safeguard operations and minimize disruptions in a dynamic, transformational landscape where economic fluctuations can be frequent. Case in point: According to PwC, 45% of CEOs believe that continuing to lead their companies along the same path they’re following now will lead to nonviability in less than a decade.
The tech companies that find ways to maintain a sharp focus on revenue growth in any situation will reap financial rewards. Following strategies like the four mentioned below will help tech companies develop financial resilience and prepare C-suite leaders to weather any kind of financial headwind.
1. Explore cost synergies
Analyze business costs that don’t directly generate return on investment (ROI). These expenses could include anything from leases to R&D efforts. Is there a way these expenses can generate revenue? If not, are they truly necessary? (For example, is remote work a possibility to reduce the costs of having a physical space?)
When possible, consider deploying common software or consolidating systems. For example, if different departments are using different types of customer relationship management (CRM) platforms, would bringing everyone and everything together in the same platform reduce costs and streamline processes?
Analyze your tech to evaluate whether there are opportunities to reduce expenses by:
- Determining what truly requires backup to a Tier 4 data center vs. traditional cloud storage
- Making sure that all active software licenses are actually being used
- Verifying that the company isn’t paying for phones or wireless hot spots that aren’t used
2. Optimize working capital
For some companies, managing the balance between cash coming in and cash going out may mean changes to inventory to minimize excess stock and reduce storage costs. Tying up funds in assets that take too long to sell may prevent your tech company from making other critical and timely investments.
For other companies, optimizing working capital may mean exploring recurring revenue (subscription-based models) to build reliable cash flow.
Sometimes, improving cash flow can involve something as simple as establishing an effective way to issue, track, and follow up on invoices—or encouraging customers to get on board with payment automation—to improve day’s sales outstanding.
3. Conduct scenario planning
How prepared is your company to withstand financial disruptions, whether they involve a natural disaster, a cyberattack, or something else?
Conducting scenario planning can help you determine who, what, and which parts of your business will be most at risk if one of these events were to occur.
By addressing the vulnerabilities revealed during scenario planning, you can improve your company’s financial resiliency.
4. Innovate and avoid complacency
As customer expectations and competitive landscapes continue to change, so should your company.
Don’t be afraid to solve problems in creative and innovative ways. Gather feedback from customers and employees to better understand what’s happening in the industry and with your company—and be ready to respond to what you learn by conceiving and scaling new products and services.
For your company’s innovative work to develop or improve products, processes, or software, your company may even be eligible for a lucrative business tax credit, which can provide a dollar-for-dollar reduction in your final tax bill.
It’s time to take action
Whether economic slowdown or extreme acceleration waits up ahead, following strategies like these can help your tech company increase revenue, enhance customer experiences, boost productivity, and deliver value in new ways.
This material is intended for educational purposes only. Statements of fact and opinions expressed are solely of the author and, unless expressly stated to the contrary, are not the opinion or position of Valley Bank. Valley Bank does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. You should consult your own tax, legal and accounting advisors before engaging in any transaction.