Frank Docot, chief financial officer, Help AG, explains how channel partners can ensure they don’t find themselves in a financial crunch.
The fact that business expansion is driven by increased demand for products and services is fundamental. But ironically, a reason many businesses fail is because they cannot manage growth. This is especially true of the Middle East channel industry wherein all too often, although the initial offering is promising, business entrants fail due to challenges with cash-flow. A perennial bane for channel organisations, the prevailing economic situation in the region certainly hasn’t helped this situation improve. As we progress into 2019 then, how can channel players stay ‘in the green’ and ensure they’re cash-flow positive?
For resellers and systems integrators, success isn’t only determined by internal factors. It is heavily influenced by relationships between customers, distributors and vendors. Despite the scale of the region, the technology community remains small and tight knit and vendors don’t just sell to anyone. And one of the criteria they’re most concerned with is the assurance that they will be paid on time. Plotting a course for gradual but steady growth is perhaps the most effective way to ensure your ability to achieve this. Accelerated and aggressive projections often lead to risky deals and overexposure. Instead, carefully evaluating every deal and making sure to continually reinvest in people is what pays dividends in the long run.
Help AG has consistently posted double-digit year-on-year growth since its establishment over a decade ago and one of the key reasons for this is that we are completely transparent with our distributors and vendors. We have three major distributors with who we have negotiated payment terms. If due to some complexity, we can’t pay within the agreed time frame, we initiate the necessary conversations as soon as we have an indication of potential delay. Other channel players fail to proactively address this, choosing instead to remain quiet and give no indication of the causes for delay, leaving no room for negotiation once they have defaulted.
Striking a good mix
Consider a typical payment framework – channel organisations offer 30-day payment terms to their customers and in turn strike 60-day payment terms with their suppliers. In an ideal scenario, the money comes in within 30 days, and money goes out before the next 30 days. However, in the real world this such simplicity is seldom found. The complexity of IT projects means client payment often extend well beyond their due dates and as delays get closer to the deadlines you’ve promised your suppliers, risk is introduced. While there’s no easy fix, a helpful approach is to maintain a good mix of client profiles. This helps ensure that those with shorter payment terms can help accommodate those that overrun.
Cash is king
I have a simple principle for positive cashflow- revenue is vanity, profit is sanity and cash is king. It’s a cliché for a reason. Your revenue is your top line which sounds great. If you have a lot of new projects, this drives your top line and you can easily be convinced that your organisation is doing well. But the reality of the situation lies in the margins as these determine how much of that revenue is actually yours. So, profit takes precedence with an important caveat- profit on paper isn’t good enough. This then raises the final and most important question- when are you going to get the money? If you have the potential to make profit but have very lax payment terms, your business won’t work. This is because while the numbers may look good, you won’t be able to pay your suppliers and your payroll and that’s a recipe for disaster!
Simply put, cash is king and it’s not a bad idea to make it your lighthouse when closing deals.