In these tough economic times, technology companies need to protect themselves and better prepare for the stormy months ahead. It is now imperative for managers to examine all areas of the firm's operations in order to reduce expenses and ensure financing availability. Knowledge Center contributors Bob Pearlman and Bob Strasser discuss eight tools and approaches that can help technology companies through the current economic downturn.
Fallout
from the current financial crisis has made its way from Wall Street to
Silicon Valley, where technology companies are battling a myriad of
problems, including frozen IT budgets, layoffs, stagnant R&D
spending and a lack of capital. Negotiating the stormy seas of these
recessionary times, while maintaining profitability, is a challenge for
even the most seasoned managers.
To help weather the storm during this economic downturn, technology
companies in the United States should consider the following eight
tools and approaches to help guide them through.
1. Properly recognize revenue
Many companies use their history of successful collections from
existing customers as primary evidence that revenue recognition
standards are met. Technology companies may need to revisit their
policies for assessing probability of collection to ensure they have
recent, sufficient evidence that the collection criterion is met prior
to recognition of revenue. Policies and procedures may include credit
and background checks, confirmation of payment terms with customers,
and even letters of credit on large or international orders.
2. Access capital using debt
In order to fund growth, an acquisition, or form partnerships and
joint ventures in these turbulent times (without accepting a lower
stock price or burning cash), technology companies are turning to
convertible debt deals. Businesses are also considering switching their
debt from the
London Interbank Offered Rate (LIBOR)
interest rate to prime rate, and are attaching warrants to the various
debt instruments. However, they should be aware of complex,
accounting-related implications to any of these options-many of which
could result in significant charges to income.
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