Managing cashflow and keeping clients during a crisis

Managing cashflow and keeping clients during a crisis | Insurance Business New Zealand

Managing cashflow and keeping clients during a crisis

Cashflow, business retention and short-term planning have become critical for all adviser businesses over the past month, with most focusing hard on how to survive the next 12-18 months.

Different businesses have put various measures into effect to manage their cashflow, and are encouraging others to “stockpile” as much as possible for potentially very difficult months ahead. However, the outlook is not all dark. Some industry players expect to see a significant upturn once the downturn has run its course, with a potentially large backlog of sidelined deals coming back into play, and experts say that maintaining existing relationships is vital if advisers want to emerge successfully on the other side.

John Bolton, Financial Advice New Zealand member and founder of mortgage and insurance brokerage Squirrel says that for his business, cashflow has undoubtedly been the biggest and most immediate concern.

“We have a salary-based business model which, when settlement volumes drop off, means you need to adjust fast,” Bolton explained.

“We’ve already consulted with our wider business, and we’ve agreed to move to 80% of our salaries. We did that very quickly, because salaries are about 70% of our cost base.”

“We do an extensive cashflow forecasting, generally for five years, which is pretty far ahead. But of course, most of us are now focusing on the next 12 months,” he said.

“It’s going to be very important to keep your powder dry, and to stockpile as much cashflow as you can through this spring.”

Bolton says that Squirrel has also been focusing heavily on staff retention and is aiming to hold on to 100% of its staff, as it may be hard to recruit good advisers on the other side of this crisis. However, he says he expects a significant bounce back of business once the crisis has died down and the economy has had a chance to recover.

“On the other side of this, I’m positive that we’ll go into a significant economic boom - probably not for the next couple of years, as the next 18 months to two years will be pretty tough,” Bolton said.

“But beyond that, I think there will be some pretty big opportunities for us.”

“I’m expecting the market to be very much focused on advice - transactional broking will disappear,” he added.

“Pricing will become a lot more commoditised - you might be able to negotiate and differentiate on price a lot more. Banks will also step away from advice and leave a decent sized part of the market to us, and I see that as an opportunity.”

Tony Vidler, business adviser and financial consultant at Strictly Business has encouraged advisers to create an emergency budget, and to map out the worst-case scenario. He says relationship management should also be a critical focus point for advisers throughout this period, and has urged advisers to get into the ‘reassurance’ business - that is, talking to their clients on an emotional level, rather than a products and solutions level.

“On the issue of managing your cash and resources, I really recommend that advisers create an ‘armageddon budget’,” Vidler said.

“Ask ‘how bad could this get?’ and get your budget down to the point where you know what your hard bottom-line numbers are. Know what costs you can’t cut out, and start to work out what revenue is highly likely to stop completely, so that you can work out where the boundaries are.”

“In the short-term, we’re not in the advice business anymore - we’re in the reassurance business,” he continued.

“We’re managing emotions, fears and uncertainty, and it’s not about giving advice on products and plans and solutions for the long-term - it’s about helping people get through the short-term. The most powerful question you can ask at the moment is ‘how are you doing?” rather than “what do you need me to do for you?”

Vidler says that advisers should adjust their mindset in terms of how they approach clients, and when it comes to business metrics, the one that that matters most is how many clients you have contacted and helped today.

“Therein lies the path back to success, post disaster,” he explained.

“We’re not trying to retain business, we’re trying to retain relationships and keep people doing business with us in the future, even if we lose a piece of business now for whatever reason. If we manage this period properly, we’ll get that business back.”