The entire world is facing a humanitarian and economic crisis unlike any we have seen in recent years. The spread of the COVID-19 pandemic has drastically changed life as we know it. Governments are forced to issue extreme measures, such as closing borders, enforcing quarantines, and promoting social distancing — all this in the effort to flatten the curve and prevent the spread of the novel coronavirus pandemic.
While governments do their best to protect society, businesses worldwide also need to take quick action to protect key stakeholders and their financial well-being. The effects of the virus and its protective measures have taken quite a toll on the global economy. The sudden disruption caused by the coronavirus crisis gave businesses little time to prepare, resulting in an economic downturn that has been felt globally. As financial and operational challenges arise, the burden of tackling them and getting through this difficult time falls onto company leaders. While CEOs will leverage their knowledge and experience to help their companies navigate times of crisis, they will rely heavily on CFO insights to define their financial decisions.
Leadership – Importance of the Chief Financial Officer During a Crisis
Amid all the uncertainty and panic caused by the current crisis, companies will look to their finance leaders for their expertise in financial advisory. The CFO’s role is to make decisions during this period of rapid economic decline to ensure the company’s financial health and organizational resilience.
However, the complexity of the current situation can leave some CFOs unsure of what steps to take to drive operational improvements and improve financial health. Consero would like to offer its experience in helping leadership teams with financial crisis response. We have experienced professionals and finance leaders that have helped numerous private companies through crises, internally and externally. We want to share our experience in ensuring business continuity and offer steps that you can follow during the pandemic to financially stabilize your business and reduce some of the uncertainty and fear your people might be experiencing. We are going to cover:
- Survival – Tackling immediate problems
- Stabilization – Preparing for the Near Term
- Return and Reinvention – Long Term Preparation
Survival – Addressing the Immediate Issues That Arise
From an economic standpoint, the COVID-19 crisis is a problem of liquidity and the financial stress that will result from it. Due to the speed and magnitude of the virus, many businesses were forced to shut down. This, in effect, resulted in a chain reaction. Businesses closing affected the businesses that relied on them. CFOs looking to control the outcome need to focus on the following things in the survival stage.
- Optimizing Financial Reserves
- Modeling Potential Revenue Scenarios
- Ensure Proper Communication
1. Optimizing Financial Reserves
Many CFOs are tackling the biggest issues first, and that is the best approach. This means optimizing financial reserves as soon as possible. Take the time to quantify the business’s available cash, as well as any incremental capital you have access to. You will need to forecast cash collections associated with the most recent sales projections. Cash is going to get tight during the crisis. You can expect many customers to look for ways to delay, extend, or reduce payments. Depending on your financial situation, you will need to determine if pressing them to make those payments or creating a compromise for the sake of future cooperation is the best course of action. If you are on the verge of being insolvent, then doubling down on collections will be necessary.
Should the business find itself running low on working capital, start looking into potential sources of credit and other options for raising capital. Focus on securing a potential lifeline during these difficult times. When push comes to shove, any source of financing can make all the difference. Try to do this early on. Having available cash on hand will spare you the stress of going through that process when it is a matter of survival.
2. Modeling Potential Revenue Scenarios
As the extent and duration of the crisis remain unknown, CFOs must develop multiple scenarios with their finance teams. Project the effects that multiple scenarios can have on the business. When doing so, consider possible timeframes, the magnitude of the virus, the most affected industries, geographical locations, supply chains, potential cash-leaks, liquidity (customer and business), and customer and vendor demands. Consider creating scenarios that take into account multiple outcomes, as well as a minimal impact scenario, a medium impact scenario, and a severe impact scenario.
An essential step in modeling out scenarios is creating a plan of action. This essentially means working with taking a discussion out of the matter, and knowing what events dictate what actions. This will require you to map out timeframes and trigger points that will require definite financial actions. Once this has been projected, it is important to put together a framework for the rest of the executive team to make decisions and monitor conditions. As the plans are put into place and enforced, CFOs should pay attention to how these financial decisions play out and affect the business in the current economic environment.
3. Ensure Proper Communication
As the responsibility of handling the financial aspect of the business falls onto the CFO, they must communicate their plans to other shot callers in the company. The goal during the crisis is to preserve cash and use resources tactically. The entire business needs to stand together and adhere to the plans put into place. This means communicating the importance of established measures throughout the company and creating incentives to reinforce them on all levels.
Stabilization – Preparing for the Near Term
Once cash preservation measures have been addressed and established, the next course of action is making sure the company is set up to function in the current circumstances. The goals of the CFO when it comes to stabilization are:
- Focus on Improving Productivity
- Ensuring Efficient Operations
1. Focus on Improving Productivity
Companies that shifted their attention to improving productivity in times of crisis outperformed their competitors significantly. Most businesses panic and do not take the appropriate action to stay relevant in a difficult economic climate. In light of this information, CFOs can look into ways to support performance improvements during the crisis. Being proactive and looking for ways to improve your services will not only keep people busy, but it will establish you as a reliable business in a difficult time.
Another great use of a CFOs time during this period is looking into the balance sheet, cash flows, financial risk, and lines of credit. Since you are going to be reviewing all of your transactions carefully, you might as well conduct a balance sheet clean up. This will allow you to be more financially flexible and focused on key metrics. In addition to that, it will give some insight into where you will want to allocate human capital and financial resources. From reallocating resources to liquidity management, focus on actions that provide a higher return and will ensure that you generate more value for the company.
2. Ensuring Efficient Operations – Emphasis On Financial Planning and Analysis
In the event of a crisis, a company will rely heavily on financial planning and analysis. They must continually look into their budgeting and forecasting to ensure the company is working with up to date business information. This will mean working to stay on the same page using collaborative tools and performance indicators. Information is power, and the more precise data you have readily available, the better decisions you will make. If your business lacks the resources and means to provide on-demand and accurate data, you should consider outsourcing this important task to professionals who handle it for you.
Return and Reinvention – Preparing For the Future
Because the current crisis has yet to reveal its full depth and duration, it will continue to incite a lot of uncertainty. However, the coronavirus pandemic also presents us with an opportunity to grow, adopt a transformational mindset, and improve business practices. Businesses that can create good plans and power through this crisis will want to learn from the experiences they have. Take the time to look at business practices your company has adopted during the pandemic. Some of them can prove to be quite productive and efficient when things stabilize. See if you can work on and integrate any of these measures into everyday business practices. Pay particular attention to the areas of the business you allocated funds to, along with the productivity measures that were put into place.
Companies are facing tough times ahead, and we are unsure how long this pandemic will last. As a CFO, it is your duty to help your company adapt and overcome the challenges that arise. Keeping track of finances and looking for ways to navigate the COVID-19 crisis doesn’t have to be a burden the CFO carries alone. If you are looking for financial tools to help improve your business operations during these difficult times, consider Consero. We offer state-of-the-art financial services that will provide you with financial planning and complete financial reporting, enabling you to track important metrics and make key decisions during the coronavirus crisis and period of rapid economic downturn.