Accounting the cost of recession

Neil Robertson explains how accountancy and ERP resellers could diversify to survive a recession.

ERP and accountancy software vendors need to diversify in the downturn, says Neil Robertson

Some customers are beginning to defer purchases for “a couple of months” and the current situation is akin to the Indian summer experienced during 1989 – suggesting we could be heading into a major downturn like that of 1990.

Recession is a self-fulfilling prophecy: low levels of deferral may escalate as business confidence drops and financial directors impose greater control.

Within a few months, we predict that many potential customers will have imposed a complete capital expenditure ban and all major purchases will need board-level sanction and an ability to deliver rapid business value.

Unfortunately for those resellers selling accountancy and ERP products, many organisations may survive perfectly well with existing systems – especially if their planned growth is curtailed.

The majority recognise poor processes in place across UK companies for controlling budgeted spend and the basic process of reconciling purchase orders with delivery notes and invoices.

In a recession organisations can become desperate. This typically leads to dishonest practices such as secondary invoicing, hoping to get the same invoice paid twice, and supplier creep, where an additional five or 10 per cent gets mysteriously added to the invoices.

Organisations with poor financial processes are vulnerable to such tactics.

In the last recession, resellers in this sector saw sales fall 40 per cent in six months. Few companies can survive a revenue drop of that magnitude without making a loss.

A growing number of customers and prospects will rethink their investment plans. And while resellers usually have a good relationship with their installed customer base, without strong return on investment to offer the board, sales may continue to slow.

How many resellers are in a position to diversify into less vulnerable software products that are more recession proof?

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 likely to fail.

However, adding complementary solutions to the portfolio around existing skills and expertise can provide the reseller with a compelling reason to contact existing customers – by far the easiest and lowest cost sell.

Indeed, resellers in this sector are actually well placed to exploit customers’ growing demands for improved financial control.

Resellers should address the top priorities for most customers: conserving cash, managing spend and ensuring investment is spent wisely and well.

Neil Robertson is chief executive officer at e-procurement software provider Compleat