How the best CFOs are leading their organizations through a crisis
Whether it’s supply chain disruption or cybersecurity concerns, right now, organizations worldwide are scrambling to put together strategies that can buoy their business through unchartered waters.
On the front lines of an organization’s battle against the virus is the CFO. CFOs play a central role in keeping the business grounded as firefighting measures go on, and also in readying the business to thrive once things start looking up.
CFOs, after all, are the guardians of the company’s financial health, and having a sound, financial footing will be critical to ensure the survival of a business.
Optimize cash reserves
One of the immediate challenges that the CFO would have to address is that of liquidity.
The economic implications of hard lockdowns (such as the one in China) are great – there is an estimated 40 to 50 percent decrease of discretionary consumer spending. Businesses will be shuttering, and will have to rely on cash reserves to keep afloat. CFOs need to optimize cash reserves and actively seek opportunities to increase capital.
This might include doubling down on customers that are delaying payments, tapping into lines of credits and, if necessary, seek relief on debt covenants to strengthen the balance sheet while they still can. Setting up such a cash ‘war room’ can help CFOs curb spending, and effectively trim the fat where needed.
Prepare for the unexpected
With heightened uncertainty, finance teams will need to rely more heavily on a range of scenarios, instead of individual time-horizon-based frameworks. Brainstorm through two or three integrated scenarios with multiple eventualities, and outline clear thresholds or trigger points that suggest what actions will be taken, and when.
This involves a whole lot of forecasting on the effects of the pandemic on various business facets, so CFOs can consider roping financial planning and analysis (FP&A) teams in, as they work closely with individual business units.
Finally, the CFO must take lead in proactively communicating the organization’s financial crisis strategy to employees, boards of directors and investors.
The organization’s priority is to preserve cash and deploy it dynamically, and this must be clearly communicated organization-wide. All business units are to understand “why this matters now”, and what their specific role is in upholding the “cash culture”.
Frequent investor communications would be highly recommended – it is essential to demonstrate that executives are quick in taking action, and to ensure confidence among all stakeholders where it’s due.
A crisis of this scale will not only reinvent organizations, but also reveal vulnerabilities and opportunities for performance improvement. Not only that, it will accelerate technology adoption by shedding light on what it takes to drive productivity when labor is unavailable.
This is the silver lining – businesses will come out of this storm more resilient, more lean, and well-equipped with the tools and strategies that will help tackle another unprecedented challenge, which will inevitably come.