The CFO role is one of few leadership positions in an organisation that has a unique vantage point across the entire business, and now more than ever, that platform must be used to help navigate the business through the uncertainty and emerge on a ‘sound footing’ from the global crisis.

Health, Safety & Communication

As a leader, the CFO has a duty of care to the well-being of their Finance teams, and in the current situation, having a heightened sense of empathy and understanding of personal challenges they may be facing at this time, is also essential.

The CFO’s leadership role in corporate Health and Safety does not stop there but should extend beyond functional boundaries, across the entire company - guiding and enabling the required frameworks and structures, whether this is financing, policy advice, resources etc. to help ensure employee safety needs are securely met in times of crisis.

Communication will be the lifeblood of the organisation - internal and external. From the customer base to suppliers and supply chains, through to unions, banks/finance houses, etc. - all stakeholders need to be kept informed, and the CFO can help conduct and support those discussions and/or negotiations.

Leadership & Governance

At this time, a ‘wait-and-see’ strategy may not be an optimal choice. This is time for leadership and action and the tone ‘from the top’ must instil a sense of urgency in this crisis.

The need for strong governance, clear leadership and effective decision making, underpinned with reliable, fact-based financial and business performance information is greater now than ever before.

A challenge for the CFO will be to ensure that corporate and management reporting structures continue to operate effectively to meet these needs.

While dealing with changes in ways of working and disruption to normal data flows, CFOs should also consider how processes can be adapted and redeveloped with mitigating measures to ensure the robustness of the control environment: What changes are needed to ensure underlying accounting records are complete and accurate? What risk management and mitigating actions are required?

While a focus on day-to-day issues is paramount, planning and assessing alternative scenarios to take the company through and beyond the crisis is also a key priority.

At the corporate side of the finance agenda, for many CFOs, year-end corporate reporting will require immediate attention and where possible, they should avail of extended reporting deadlines for filings. Some CFOs will have to address, not least: How to deal with forward-looking statements and estimates? How best to determine principal risks and uncertainties? Challenges of ‘going concern’ assessments; and will boards be confident in stating that they have a ‘reasonable expectation’ of a company’s viability?

Response to the current and evolving challenges can be viewed over four key time-framed phases:

  • Survival – Immediate
  • Stabilisation – Near-term
  • Rebuild – Intermediate
  • Recovery – Longer-term

Survival and Preservation

Immediate

At the time of writing, many companies will have taken steps to respond to the immediate crisis through a combination of their own actions and those imposed by government. The phrase ‘Cash is King’ has never been more relevant and organisations as a whole, spearheaded by the CFO will need to switch to a cash mindset. Cash reserves (restricted and available) need to be determined, immediate liquidity requirements quantified and measures put in place to preserve cash. In some cases, sources and accessibility to available credit should be identified.

As cash-inflow from customer/client receivables grinds to a halt, optimising and prioritising cash outflows must be managed carefully.

Planning ahead, determining what is discretionary and what is critical, Capex and Opex alike, product line by product line, by division, by geography across all company functions will help cut the cash burn and ‘shore-up’ what may now be a depleting balance sheet.

Urgency and pace in a controlled and focused manner must be prevalent throughout the company.  Swift, decisive, yet flexible actions from the CFO - pre-emptive and reactive –  are required to address the ever-evolving situation.

The need for strong governance, clear leadership and effective decision making, underpinned with reliable, fact-based financial and business performance information is greater now than ever before.

Stabilisation and Scenario Planning

Near-term

With immediate steps taken, the CFO can shift attention to stabilising the ongoing business and keep the momentum of the organisation functioning through the extended lockdown.

Strengthening focus on the company’s liquidity position, by implementing additional measures such as 13-week cash-flow forecasts, mandates to reduce spending and freeze on discretionary projects can all help optimise net working capital and shorten cash-conversion cycle times.

Monitoring operational activity and tailoring responsive measures as economic challenges evolve will also contribute to balancing financial resources.

While a focus on day-to-day issues is paramount, planning and assessing alternative scenarios to take the company through and beyond the crisis will be a key priority for the CFO.

Baselining the scenarios to reflect any existing underperformance or financial and/or operational challenges, including those issues that may have been exacerbated by the crisis, will provide a sound starting position for planning.

Evolving the scenario modelling process, capturing changes in consumer trends and as new economic options emerge, companies can identify those most cost-effective, sustainable, or achievable – depending on priorities and constraints – near-term and into the future.

Stress testing, developing contingency plans and comparing best and worst-case alternatives are all aspects of the planning process. The goal of scenario planning now is not about determining the future with precision, but rather assessing a range of alternative strategies and their viability.

With scenarios in place CFOs and boards can use these to evaluate outcomes, risks, uncertainties and opportunities and as a mechanism to steer the business through the challenges that lie ahead.

Rebuild  & Rightsize

Intermediate

Looking beyond the crisis, management has a responsibility to consider the necessary steps to maintain/create a sustainable business for the future (for its employees, investors and all stakeholders) which may also require making some tough choices. CFOs will play a key part in the strategic setting, determining and assessing the ‘rebuild and rightsizing’ of the business for the longer-term.

For some, this may require a deep transformational change, encompassing the entire business strategy, restructuring organisations, delaying and deferring investments, scaling back on resources, amending capital structures, adopting a radical change to operating plans and operating models - all with the aim of putting the business on a sound footing to emerge from the crisis.

Recovery

Longer-term

Timing, sequence, and pace of economic recovery is still unknown and will vary by country, sector, industry and company. However, those CFOs and boards that have considered and prepared for recovery will have developed a more informed outlook on the future and a stronger starting position once the global economy begins to recover.

CFOs can influence and guide that corporate recovery: this may be through M&A opportunities, a reappraisal of capital investments or enabling businesses to seek out new and innovative ways to boost growth and productivity.

Although a forward-looking perspective is essential, the rapid onset of the economic shock may have exposed many companies’ underlying weaknesses.

As CFOs and boards now look to the future, this may also be a time to balance opportunity with lessons learned and for management to consider placing a greater degree of emphasis on the company’s longer-term resilience to withstand future shocks or economic downturns.

New ‘Normal’

While the future cannot be predicted with a high degree of certainty, the ripple-effect of the economic shock across some sectors (e.g. tourism, hospitality, airlines) may have longer-lasting financial and operational consequences.

In the long-run, CFOs, boards and companies that move nimbly to reimagine the future, remain flexible to innovate and adapt, have the ability and capabilities to reposition the company strategies and reconfigure its operating model to meet the needs of an evolving economic environment will be better positioned to make it through to a brighter economic landscape.