Role of CFO in a Crisis
In the last week, I called several of my clients around the world to get a sense of how they’re coping in this crisis. There is huge anxiety and concern for where this is all going and particularly with regards to liquidity. You may remember that in this column just three weeks ago, I said that ‘cash is king’. That was an understatement, because now ‘cash is critical’.
With no end in sight to the restrictions on movement, we also have to anticipate the inevitability of the need for social distancing for some time to come. That has extraordinary implications for non-food retail, travel and hospitality sectors. The consequent knock-on impact further back up the supply chain for every industry therefore is obvious. And that will impact on cash for everyone.
Particularly at senior level in an organisation, every executive has a role to play in supporting the drive for cash. In normal trading times, all executives have a responsibility for either getting cash in (through sales and marketing for example), for spending cash and or for maximizing productivity.
The CFO however is the one person that has full visibility and understanding of the cash situation. For that reason in a time of crisis such as we have right now, the CFO role has to move temporarily into pole position.
Tips for CFOs in a time of crisis. Survival first, then recovery, then long term
1. Assess liquidity
The first step that all CFOs have undoubtedly engaged in is to get a handle on the short term cash situation across all revenue and cost streams. I know this is obvious but don’t forget to consult with all departments to explore how you can either delay payments out and accelerate payments in. I hate to admit this but being a little aggressive in the pursuit of cash is forgivable at this time.
2. Convene a SWAT Team
Despite having access to all the data, the CFO also needs to know what other commitments have been made in the short and medium term. Bring together representatives from all functions to gather information on what is in the pipeline. This might include new products, supply chain issues, recruitment drives, marketing campaigns, long-term agreements with customers or contractors, investments in IT, and so on.
You need to insist on collating all of this information into one spreadsheet to give you full temporary control. You need to become the internal banker.
3. Build short term plans
With this clarity, develop a number of scenario-based cash-flow forecasts. Anticipate how the recovery might develop in best-case versus worst-case options. Bring together all of your own company data along with the macro-economic and industry insights you can get your hands. Build a supply and demand analysis and develop a rolling forecast of outcomes and EBIT risks.
Consider geographies that have not peaked yet versus those that have passed the curve. Don’t forget any issues specific to your supply chain and your people. If you have let people go even temporarily, consider the time it takes to build a new team.
4. Communicate with conviction
The one thing we can take from this crisis, is the level of community concern and support. Your people can see every day how this pandemic has affected all of our lives. So they won’t be surprised at your extra-special focus on cash. So do communicate the SWAT plans in enough detail that conveys action, showing that you’re in control during what everyone agrees is an unpredictable environment.
Nevertheless, be careful to bring leadership and balance in the face of adversity. Your teams don’t want to hear more bad news from you. Yes they want the truth, but a great leader will inspire and reassure through measured and balanced messaging that brings as much stability and hope as possible.
5. Facilitate medium term plans
To try to just pick up on all projects from before the crisis started might not be wise. Perhaps new or different products should come to the fore? Routes to market, channels of distribution or even customer preferences might change.
For that reason, when the CFO and the SWAT team have got past the initial crisis management phase, they should then look to support the business in its recovery phase.
6. Strategize for the long term
Most likely the strategies that you developed before the end of 2019 will have to be revisited. For example, your budgeting may have been built through an incremental percentage uplift on 2018 results. It’s going to have to change now to zero-based budgeting for the time being. So get ready to have that strategy workshop with the senior team as soon as is sensible. I appreciate it’s a little early for some to be thinking about that, but it will need to happen quite soon.
How an organisation copes in this crisis will be a real test of its culture. If in your values you claim to be agile, innovative or people-focused, please don’t forget these great attributes. They should enable you to navigate the way forward.
Taking on the pole position for the whole organisation carries great responsibility. The CEO is still the CEO, but with a combination of sound judgement, good decision-making and empathy, the CFO needs to step up and be the steady voice of reason. The finance team needs to develop a sense of urgency for the next year, that is relentless. If you have been a department of bean counters heretofore, then you need to pivot and become proactive. Your business needs you more than ever.