With the global spread of the Covid-19 pandemic causing a worldwide humanitarian and economic crisis, we are now living in a world of large-scale lockdowns, quarantines, border closures, school closures, and social distancing. Consequently, companies have had to react swiftly and decisively to protect their clients, employees, suppliers, and ultimately their financial results to ensure survival. The rules of how business is conducted is changing on a daily basis as companies adapt to evolving rules and regulations, health guidelines, and epidemiological forecasts. Digital connectivity is the key to this adaption with companies struggling to achieve transparent communication with clients, colleagues, business partners, and investors, as work from home becomes the new normal.
It is amid this chaos and uncertainty, that the CFO must stand-up and provide strong leadership to steer the ship through these choppy waters, and ultimately ensure the company is in the best position possible to bounce back when the light appears at the end of the tunnel. The CFO while not always one of the higher profile C-suite positions, is the leader who is directly responsible for a company’s health and organizational resilience. Over 30 years of experience supporting CFO’s with our suite of e-Invoicing, P2P and AP Automation, and Innovative Financial Solutions, has provided us with an in-depth insight into the actions CFO’s must take to successfully navigate their companies through any crisis, especially the one we are experiencing now.
Number 1: Execute a Communications Plan!
While many companies look to the CEO for leadership during times of uncertainty, it is also the CFO who must take a lead role in both the financial and strategic aspects of crisis management. The first step to guiding the company through the Covid-19 crisis is to ensure that the CFO “over-communicates” both the actual and projected impact of the crisis on the company, and what actions are being implemented to protect the business. The CFO must ensure that they pre-emptively address the specific concerns of different stakeholders including employees, business partners, boards of directors, and investors, with proactive, assertive, and most importantly, frequent communication updates. With the Covid-19 crisis causing a never-ending shift in the business landscape, so will the priorities of the company constantly change. Unlike during a business as usual (BAU) environment, where a CFO’s company announcements and financial reporting are delivered as per a specific schedule, now they will have to address the urgent and immediate concerns of all stakeholders concurrently. Whether it be communicating cash optimization strategies to employees, liquidity positions to boards of directors, or revisions to earlier earnings commitments to investors, the CFO has to dramatically increase the frequency of their communications to demonstrate that they are taking fast and resolute action!
Number 2: Launch a Cash War Room!
Unlike investments that provide returns based on levels of risk, the usual risk with cash is the “opportunity cost” of holding it and the erosion of this cash due to inflation, with “opportunity cost” in this case, being in the form of higher yielding investments that the money could be utilised for. However, all this dramatically changes in the face of a crisis, such as the Covid-19 pandemic, where cash definitely becomes king! Unlike asset classes such as stocks, commodities, property, gold, and cryptocurrency, the balance you see in your bank account is the money that you have, while the value of your other asset classes today may not be of the same value tomorrow! This is where in the face of the Covid-19 crisis, CFO’s must provide a security blanket for their company by launching a cash war room. After quickly quantifying the cash balance of the company, the CFO needs to identify and implement urgent financial administration policies to incrementally increase the value of the balance sheet. This includes immediately implementing aggressive curbs on spending throughout the company; doubling-down on outstanding accounts payable collection activities to mitigate the risk of customers becoming insolvent; tapping on available lines of credit while concurrently exploring avenues for raising capital; seeking relief on debt covenants; renegotiating supplier agreements; prioritizing payments; and tracking the company’s liquidity in real time. During the ongoing Covid-19 crisis, cash shortages are a distinct possibility and conditions are constantly changing, so the implementation of these measures by the CFO to establish a cash war room, will provide the company with peace of mind.
Number 3: Activate Financial Planning & Analysis Tools!
The CFO can sometimes be lulled into a sense of complacency when indirect costs, direct costs, and sales revenues remain consistent and easy to analyse and forecast over many financial quarters. Unfortunately, there is nothing like a crisis combined with government intervention, to come along and turn everything upside down. Under crisis conditions, the CFO must strengthen their budgeting and forecasting activities in order to provide constantly updated business information to the C-suite executive team, board of directors, and investors, which becomes a rolling, real-time forecast. Some CFO’s in large multi-national companies (MNC’s) will be fortunate enough to have their own dedicated financial planning and analysis (FP & A) teams to support them, however most do not have this luxury. These CFO’s will need to identify finance executives within their department with strong analytics and business backgrounds who can transition from their current daily management of accounts roles, to the identification and analysis of key financial metrics that will dictate the company’s course of action through the rocky months ahead. This evaluation of key financial metrics, together with the implementation of real-time dashboard analytics and data-driven “decision cockpits” is where the CFO combines the finance, business, and digital expertise required to successfully navigate the company through the Covid-19 crisis.
Number 4: Create Hypothetical Financial Models!
One of the greatest fears that the Covid-19 crisis has generated in companies around the world is the “sense of the unknown.” Not knowing when the crisis will end, what restrictions the government will enforce next, when will business travel be allowed to resume, and how your customers will be impacted, all adds to the heightened uncertainty and anxiety being felt. This is where the CFO needs to generate hypothetical financial models based on a wide range of business scenarios, as opposed to operating per BAU time-horizon frameworks. These hypothetical financial models provide different points of view that encompass multiple scenarios such as the predicted growth or decline in the number of Covid-19 cases, what industry-sectors are negatively impacted the most, and which geographical territories are better positioned for faster recovery? The CFO must liaise closely with the business units to identify critical threshold limits, the effects on supply and demand if these limits are triggered, and what financial actions the company will take as a result. These hypothetical financial models are therefore incorporating company-specific data, macroeconomic components, and second order impacts including workforce dislocation, supply chain disruption, customer liquidity forecasts, and cash leakages, which all contribute to accurately calculating EBITDA risk. With this in place, the CFO has created a crisis management framework providing branch logic where the company’s leadership can refer to forecast elements based on the changing conditions and therefore make better business decisions that preserve cash reserves.
Number 5: Conduct a Diagnostic Audit of Your Balance Sheet!
This period of crisis is an opportunity for CFO’s to perform a deep dive review and diagnostic audit of their Balance Sheets. The objective of this diagnostic audit is two-fold:
1.) Strengthen the resilience of the Balance Sheet;
2.) Revaluate all company investments. These objectives are achieved by optimizing accounts receivable and accounts payable terms and conditions, refinancing debt obligations, reducing stock and inventory surpluses, and reviewing goodwill impairments. This “spring cleaning” of the Balance Sheet will achieve incremental benefits that bolsters the company’s financial resilience, increasing the length of its recovery runway. Furthermore, the CFO must streamline the company’s investment portfolio by conducting a major review of all capital allocations, especially in the areas of research and development, as well as technology. With return on investment (ROI) analyses completed under BAU scenarios, these projected returns and time-frames will most certainly be negatively impacted as a result of the Covid-19 crisis and will need to be revised downwards accordingly. The CFO is required to demonstrate strong and intuitive leadership by rapidly transferring both financial and human resources to high-yielding projects and investments, which enhances the company’s financial flexibility while still being focussed on core metrics.
Number 6: Strike the Right Balance!
In business, when “striking a balance,” you learn to accept components of both strategies in order to satisfy some of the demands of both sides of an argument, as opposed to all of the demands of just one side. During the Covid-19 crisis, this is the tight-rope that all CFO’s must walk as they endeavour to strike the right balance between reducing operating costs and exploring revenue generating opportunities, in order to boost the company’s overall productivity. The ultimate objective for the CFO here, is how do we cut all unnecessary Indirect Costs (and in the cases of less profitable departments, their Direct Costs as well), while intuitively allocating Direct Costs to products and services with high strategic and revenue value? Our research has demonstrated that during previous economic crises, companies with high-performing CFO’s reduced their operating costs by a significantly higher percentage and at a much quicker rate, compared with their under-performing peers. However, at the same time, they also identified revenue generating opportunities to achieve near-term performance improvements. This included reallocating resources to departments with strong revenue and profit streams, investing in omnichannel sales and delivery platforms, or developing new products and services that target clients experiencing financial challenges therefore facilitating long-term loyalty and retention. During this Covid-19 crisis, CFO’s must strike the right balance where they take decisive action to reduce operating costs, yet demonstrate flexibility to balance these reductions against the need to scale the business back-up as the economy recovers.
Number 7: Embrace a Transformational Mindset!
There is an interesting tendency in human nature to reject change so that our lives remain stable with the same routines. We share this desire for homeostasis with all living things, which is actually an evolutionary asset keeping us from needlessly interfering when things are going well. Due to the often repetitive nature of a CFO’s daily activities, it is easy to settle into these “comfort zones,” however this mind-set must be completely abandoned during a crisis when the company is under duress. This is where the Covid-19 crisis is an opportune time for CFO’s to implement dynamic resource allocation through the restructuring of components of the business that now require transformation. To achieve this, the CFO must lead the entire finance organization to embrace a transformational mindset where the dread of having to navigate unfamiliar territory is replaced with a focus on the decisive action that needs to be taken. The CFO should drive an audit of the company’s business unit portfolio including creating budgets, allocating targets, monitoring performance, and challenging them on sales growth or expense reduction, which enables each business unit to maximize their success potential. The Covid-19 crisis is not the time to continue focussing on BAU “incremental growth,” but instead to identify opportunities and implement transformational plans that dramatically boost revenues or cut costs.
Number 8: Explore Acquisition and Divestiture Opportunities!
Three of the most respected economic research institutions – the International Monetary Fund (IMF), the Bank for International Settlements (BIS), and the United States Federal Reserve, have released reports throughout 2020 laying bare the economic carnage caused by the Covid-19 crisis. Overall, it represents a grim prognosis, full of uncertainties and daunting challenges for companies and their CFO’s. However, these turbulent financial markets and plummeting valuations, also create a ripe environment for acquisition and divestiture opportunities that the CFO must explore. A strategic approach to implementing small to medium-sized acquisitions of inter-connected and complimentary businesses can have a large-scale positive impact on the company in the long-term during this disruptive period. While through the implementation of divestitures, capital can be re-allocated towards high-priority acquisitions related to innovative products and services, new geographical markets, supply-chain technologies, and omnichannel opportunities. During an economic crisis, a CFO’s objective is to make the company as resilient as possible, and our research has demonstrated that the best performing companies divested assets 1.5 times more than their peers during previous crises. This is where the CFO needs to be the driving force in determining how the implementation of acquisitions and divestitures can be an effective tool to manage the Covid-19 crisis.
Number 9: Drive a Digital Transformation!
What’s unique about the Covid-19 crisis, is that this is the first economic disaster where a large proportion of the global workforce have been forced to work from home. Unlike during previous economic crises where it’s been “all hands on deck” in the office, the Covid-19 crisis has challenged companies to navigate the financial uncertainty, while simultaneously implementing enforced decentralised and remote working policies for their employees. With the Covid-19 crisis completely changing the way we conduct business, companies have scrambled to implement fundamental digital tools such as team collaboration, video conferencing, and knowledge sharing platforms. However, this adoption of the 3 “D’s”: “Digitization, Digitalization, and Digital Transformation,” must not be a one-time event. CFO’s must take the lead to drive the continued digital transformation of their organizations so that the benefits are experienced long after the Covid-19 crisis has subsided. Solutions that the CFO and his finance team have implemented during the Covid-19 crisis, including the cash war room, financial planning and analysis tools, rolling forecasts, hypothetical financial models, and balance sheet audits, can all be codified utilizing digitalization and automation technologies. This pro-active advocacy of digital transformation will be business critical in ensuring accurate financial reporting, informed decision making, and business continuity during both BAU scenarios, as well as times of financial crisis, reducing exposure to external shocks while facilitating resilience.
Number 10: Implement ivi’s Suite of e-Invoicing, AP & P2P Automation, and Innovative Financial Solutions!
For Number 10, here are the top 10 ways that ivi’s Suite of e-Invoicing, AP & P2P Automation, and Innovative Financial Solutions minimize the negative impact of the Covid-19 crisis, embed resilience into your enterprise, and future-proof your business!
1.) With limited or no access to printers and postal services in your home office during decentralised working; simply transfer your invoice data to us via the ivi Network and we will handle your invoice dispatch via whatever data and document format, and transmission channel that your customers require.
2.) With home office operations during decentralised working, meaning you are unable to receive invoices from your suppliers resulting in conflict management, late payment fees, and interruption in services; we easily ensure that you receive all your supplier invoice data electronically via whatever data and document format, and transmission channel that you require; fully integrated with your existing finance and accounting or ERP system, with the highest data accuracy in the industry.
3.) With your customers no longer able to receive physical mail because they are either in a home office during decentralised working or in a crisis area with limited postal delivery; go digital with ivi and transform your accounts payable and receivable operations to be 100% paperless and touchless from day 1.
4.) With limited or no resources for time and cost-intensive IT projects due to cost-cutting and employee short-time work, furlough, or lay-offs; we provide a low barrier to entry, little to no changes to your existing IT systems and processes, minimal up-front costs, and a pay-per-usage structure.
5.) With your company experiencing financial difficulties and therefore, unfortunately having to reduce human resources; we will 100% eradicate the cost, time, and resource-intensive activities of manual data entry by digitally delivering all your supplier invoice data with the highest data accuracy in the industry.
6.) With your customers no longer having the capacity to process their invoice payments promptly because they are on short-time work or in their home office due to decentralised working; we will improve your cash-flow by receiving payments quicker and providing your customers with whatever data and document format, and transmission channel that they require to expedite payment and minimize exception-handling.
7.) With home office operations during decentralised working making it difficult to execute internal approval processes; we provide you with a supplier invoice receipt tool, as well as a customized and automated digital approval process and workflow so that you can keep track of your expenses.
8.) With your customer invoices no longer reaching their recipients because their office locations were closed at short notice; we send your customer invoices digitally, guaranteeing delivery, and making sure they are received promptly, so that you receive payment quicker.
9.) With your need to expand internationally so that you are no longer dependent on just one market, but you are not familiar with local legal and compliance regarding invoice formats; we support all international markets, so simply transfer your invoices to us via the ivi Network and we will convert them into the government required formats before sending them to your customers, ensuring that you are 100% legal and compliant.
10.) With your local or international private and government-sector customers requiring electronic delivery of invoices in a legally compliant format; we will deliver the invoice document and data formats via the transmission channels required by local law, at the touch of a button. Stay tuned and follow us for more information, as we present the “Top 10 Ways CFO’s Can Navigate Their Companies Through the Covid-19 Crisis!”