Yes, you are right – the old adage “cash is king” pops up almost every decade year, when the next “financial crisis” or recession hits us.

So, before we hit the next financial crisis, it’s important to prepare your organization to withstand things like lower demand, tougher competition and increased regulatory requirements. The way you can prepare your business for unforeseen circumstance is by upgrading your reporting and analytical capabilities. This kind of decision will help your company to avoid bankruptcy!

By the end of the day, it’s always the CFO and their team, which realizes, that liquidity has become a scarce resource, and the organization must react immediately. – While this may be the typical approach, it often leads to business leaders making wrong decisions. Why are these the wrong decisions? Because the underlying information they are using to inform their conclusions is not based on accurate, detailed data and it takes too long to get the information necessary to adjust and make the right choices.
 

Understanding Customer Probability


However, as a CFO, you can actually do something about this. If your organization understands customer profitability in detail, then your organization can easily navigate through a recession, because your company already knows your business and market and can adjust based on facts in real-time.

When I talk about customer profitability, I’m talking about a full Profit & Loss per customer, it’s not ‘just’ a profit margin view, which is based on revenue and costs of goods sold (COGS) per customer. Because this approach only provides you with a marginal point of view. Instead, decision makers need a lot more information, if they want to understand how customer profitability impacts liquidity!

Customer profitability done the right way, is about developing a profit and loss per customer model based on EBITDA. We all know, this is not trivial, because it involves both ERP and non-ERP data at the most granular level, as well as common definitions and business rules.
 
The most visionary CFOs and their finance teams have realized the benefits and importance of utilizing all of the data they generate and gather along the value chain.


Getting Value from Data


All organizations have humongous volumes of data, but sadly in most cases -organizations don’t have a clue about how to extract all the value from the data. The reason for the value loss is because the majority of all organizations view data itself from a functional point of view instead of gathering, storing and preparing a rich data set where it’s possible  to  also analyze data across processes (i.e. along the value chain of your organization).

If CFOs and their finance team – don’t start establishing a solid and high performing data foundation (based on both ERP and non-ERP data), your organization will be at risk of not having enough cash to withstand the next “downturn”.  It’s critical for your business to understand in detail the value and cost drivers behind your organization’s profit in the context of per customer, product, activity and more.
 
The most visionary CFOs and their finance teams have realized the benefits and importance of utilizing all of the data they generate and gather along the value chain. They do this by utilizing Teradata’s high performing analytical platform, Vantage, to automate data management and  to deliver the answers. The overall benefit is that their organization can make faster decisions and adjust their business models accordingly based on data driven facts. In addition, these organizations now have a high-quality data foundation based on ERP and non-ERP data, which is ready to use as input to forecast and model the future with unparalleled accuracy and much less effort.
 

Data as the Differentiator


In summary, across all industries organizations are focused on differentiating themselves from their competitors. One way your organization has a chance to distinguish yourself amongst your peers is by really taking advantage of your data.  The use of data not only enhances your reporting and analytical capabilities but also significantly improves your business’ decision-making processes.  When you understand your profits per customer, then you also have full insight into the impact on liquidity/current cash flow, as well as how lifetime value per customer will evolve over time.
 
Michael Ingemann

Michael Ingemann is the Practice Partner for Financial Management at Teradata International. Michael started out as an auditor in Coopers & Lybrand (now PwC) in the early ‘90s and has ever since worked in a variety of senior finance positions in different industries (Oil & Gas and Airline). Since 2002, he has been working as a senior management consultant delivering all kinds of finance transformation projects for companies in Europe and Asia, where optimization of the Finance department and enhancing their analytical capabilities, via usage of all data, have been the key elements. At Copenhagen Business School, Michael has earned an HD in management/financial accounting (HD(R)). In addition, also from Copenhagen Business School, he has also earned an Executive MBA in General Management.

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