What Can CFOs Do to Change the Tailwind of a Company during Crisis?
It is a matter of fact that strong and steady leadership from the finance organization is critical for addressing immediate concerns about safety and survival, stabilizing the business in the near term, and positioning it for recovery.
The spread of the coronavirus has created a worldwide humanitarian and economic crisis. The events we are living through are in many ways unprecedented, with large-scale quarantines, border closings, school closings, and physical distancing. Governments and communities have been jolted into action to “flatten the curve.”
Organizations too were put under pressure to accelerate their actions to protect employees, customers, suppliers, and financial results. The challenges are many and varied.With some companies losing up to 75% of their revenues in a single quarter, cash isn’t just king, it’s now critical for survival. Therefore, digital connectivity is now fundamental to the continuity of business operations, as remote work becomes the norm across much of the globe. The need for frequent, transparent communication with colleagues and investors has only ramped up in importance as business conditions, epidemiological forecasts, and rules of conduct change daily, if not hourly.
Amid all this uncertainty, my role as a CFO became very important. The organization requires a strong, central role, alongside executive peers, in stabilizing the business and positioning it to thrive when conditions improve. In this article, I’ve listed the critical steps CFOs and finance organizations can take for the company in order to stronghold its recovery from the pandemic effect.
Address the immediate crisis
Following the outbreak of the pandemic, thousands of companies had to close their doors temporarily. Their supply chains have been disrupted. Consumers can no longer make many discretionary purchases. The finance leader’s top priority, then, has to be optimizing cash reserves, as the magnitude and duration of the crisis remain unclear.
Most CFOs are already moving quickly to quantify their companies’ cash on hand as well as any incremental capital they can access. Finance leaders will need to forecast cash collections associated with the latest sales projections. With many customers delaying payments, however, some companies may need to double down on collections to remain solvent. When working capital is no longer sufficient, CFOs should consider tapping lines of credit and other options while reviewing opportunities to raise capital, such as through divestitures or joint ventures. Additionally, CFOs can use various tools or mechanismsto prioritize payments and impose clear reporting metrics that track liquidity in real-time.
Institute a communications plan
The CFO must take a lead role in the financial and strategic aspects of crisis management. As mentioned previously, the company’s primary finance focus during this period will be on implementing a “cash culture”that is preserving cash and deploying it dynamically. The CFO must communicate this priority throughout the organization and help establish incentives to reinforce it so that all departments and business units understand “why this matters now” and “what their specific role is in helping optimize cash.”
It is equally critical to communicate proactively with boards of directors and investors. The message to both should focus on the crisis’ actual and projected effects on the company, the actions being taken to protect the business, the liquidity situation, and any changes to earlier earnings commitments.
Stabilize the business
Once concerns about cash preservation have been addressed, the CFO needs to ensure that the company is positioned to operate effectively in this next normal. The finance leader’s critical tasks here will include making operational improvements to bolster productivity, re-evaluating the investment portfolio, and investing in the finance function’s capabilities.
Thrive in the next normal
Once the crisis abates, senior management will want to move forward. To enable the company’s pursuit of bold strategic moves, the CFO and peer executives should convene a small group of talented executives whose mandate is to focus on strategic planning, with oversight and support from senior management and the board. The team will set the game plan for investments, portfolio shifts, and major productivity initiatives that will position the company to win after the pandemic.
Adopt a transformation mindset
Crises are often opportune times to restructure parts of the business that require transformation. The CFO and finance organization would be well served to adopt a transformation mindset when they are setting targets, managing performance, constructing budgets, or challenging their business on growth or expense actions. The finance team should launch a review of the portfolio, with a focus on achieving the full potential of each business unit. This is a time to shelve incremental thinking and seek out transformational plans that could boost revenues or reduce costs—not by 5 to 10 percent but by 30 to 40 percent.
Boost productivity through digitization
This is the first economic disruption that requires a large part of the global workforce to perform their duties remotely, making digital-collaboration tools necessary to keep the business functioning. But the finance team’s use of digitization to help the company manage the crisis should not be considered a one-time event. Digital initiatives that once seemed out of reach starting from automated closings to real-time forecasts, are now business critical. The CFO and finance team should take a leadership position in advocating for the use of digitization across the organization, long after the crisis has passed. This active and informed embrace of digitization will be invaluable for to ensure accurate reporting, informed decision making, and business continuity in any future crises.
In the coming days, weeks, and months, as employees are struggling with anxiety about their health, future, and loved ones, finance leaders must demonstrate empathy and build bounded optimism that the organization and its people will find a way through the crisis.
The CFO can back up this view with clear actions and decisions. Regular communication is critical: the CFO must be forthcoming about the “knowns” and the “unknowns.” This will help ease misgivings, decrease distraction, and keep people motivated. Empowering others in the finance organization to direct aspects of the crisis response while establishing a financial decision-making framework that will help executive peers make necessary trade-offs is also hectic.
No one knows how long the pandemic will last, but in time, business and daily life will find a new equilibrium. CFOs are key to ensuring that their organizations not only survive the current crisis but thrive in the next normal.