How Technology Companies Can Survive the Financial Crisis

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.