In the immediate aftermath of the coronavirus pandemic, companies scrambled to adapt. Now into the next phase of this unprecedented event, companies have worked out some of the initial kinks of working remotely and preserving business continuity.
With that important work done (or in progress), companies can start examining the effects of the pandemic on the business thus far and predicting the impact in the future. Realistically, the fallout from what has already happened required CFOs to reconsider every financial plan currently on the books. Meanwhile, they need to recontextualize how they think about enterprise performance management, focusing on new metrics that reflect today’s priorities.
As you work to weather the economic downturn, make sure the accounting department monitors these important KPIs:
For many companies, sales are likely to remain flat or decline into the foreseeable future. Sales vulnerability explores the consequences of falling revenue figures (whether 10 percent or 50 percent) on cash flow. Hopefully, sales do not fall as far as you forecast, but by exploring the impact early, you’re better able to manage the consequences. After running a range of hypothetical models, get daily or even hourly revenue updates to anticipate how things are trending.
With revenue falling, companies must become as lean as possible. Working remotely helps, but it complicates things too because it’s (hopefully) only a temporary situation, and companies may still be paying for unused office space or other resources. In any case, CFOs need to monitor all three aspects of operating costs: direct costs related to revenue generation, indirect costs for things like marketing and IT, and human capital costs such as salaries. Treat each of these as a separate KPI on which you receive updates frequently; that way you understand where and how money flows out of the business.
You also need to know how much money flows into the business. Measure operating profit by taking revenues and subtracting operating costs as well as projected taxes. Once you know the operating profit and how it’s been tracking since the economic shutdowns, you can start to make predictions about cash flow. Those help with the grim but important work of deciding whether layoffs or other significant cutbacks are necessary.
On top of the debt your company already owed, it may be taking on loans or other forms of financing to stay afloat. Track how much the company owes at any given moment, and look for ways to manage that debt strategically. That might mean paying invoices early to trigger rebates or delaying payment for longer if the company needs to keep the cash on hand. Managing debt in ways that don’t jeopardize cash flow, supplier relations, or credit ratings starts by getting regular reports dedicated to this issue alone.
CFOs must remain laser-focused on working capital—arguably the most important KPI on this list—through the duration of the pandemic. Calculate it by subtracting current liabilities from current assets, and update the figure as often as possible, ideally in real time. Working capital represents the pulse of the company: Without it, there’s no life left. Keeping enough cash on hand is hard enough in the best of times, to say nothing of right now, but it’s impossible to do without first tracking the figure using the latest data available.
Now that you know what you need to track, the question becomes how. Right now doesn’t look like an ideal time to learn sophisticated reporting techniques, yet those are exactly what CFOs need to track important KPIs in depth. Instead of relying on people or processes to handle reporting, rely on insightsoftware. We have developed a suite of innovative financial reporting solutions that take the heavy-lifting out of tracking metrics. More importantly, they take the guesswork out of enterprise performance management even during the most uncertain of times. When you’re ready to learn more, let insightsoftware help you plan your COVID-19 response and recovery.