The COVID-19 crisis has catapulted many businesses into triage mode, with finance and accounting teams scrambling to shore up company finances in the face of an economic downturn. Government assistance in the form of Paycheck Protection Program (PPP) loans, the Main Street Lending Program, and other initiatives have been a lifeline for most small and mid-sized businesses.
Fortunately, the level of uncertainty has fallen considerably, as many businesses are beginning to re-open, albeit with some restrictions and under capacity restrictions. There is a growing sense that the worst of this crisis is over, but there is good reason to proceed with caution. As the PPP cash infusion is used up and as unemployed or underemployed members of the workforce curtail spending, the economy is unlikely to return to normal in the very near future.
According to a recent survey by PwC, 39 percent of executives expect that a return to business as usual would take one to three months “if COVID-19 were to end today.” By comparison, in a similar survey in early March, 66 percent believed they would fully recover from the disruption in just one month.
As companies have navigated through this crisis, the role of the CFO has been more important than ever. How can CFOs help their companies move from triage mode to recovery mode more quickly?
Empower Your Virtual Organization
Collaboration tools have seen a dramatic spike in usage as millions of people around the globe suddenly found themselves working from home. While web conferencing platforms have clearly been very beneficial throughout this crisis, there is far more to effective collaboration than just being able to hold online meetings.
Sharing and editing documents outside the company firewall while conforming to good security standards introduces some additional challenges. Information that had previously been accessed in-house must now be accessible from a home office without compromising security.
For F&A teams in particular, the period-end closing process may have suddenly become a bit more challenging. Organizations that have always used a physical sign-off process need to find new ways of doing that, for example. Processing, filing, and retrieving physical documents may be more complicated than in the past.
Tools that bolster your team’s virtual capabilities will be a sound investment, akin to insurance against potentially prolonged restrictions leading to continued remote work. Such tools have benefits beyond this crisis, however. Many companies have seen productivity and employee satisfaction increase with virtual tools as their teams have shifted to remote work.
Keep a Close Eye on Liquidity
Liquidity has been top of mind for most CFOs over the past few months. Government loan programs have eased the pain, but smart companies will continue to make liquidity a priority. CFOs should consider seeking additional funding sources, including new lines of credit. Maintain strong relationships with existing lenders, and consider establishing relationships with new lenders.
As the potential for recession looms, companies should exercise caution respecting accounts receivable and customer credit. While many small businesses continue to face an uncertain future and limited sources of revenue, there is a very real possibility that many will fail. Exposure to bad debts is potentially higher now than any time in recent memory. F&A should be monitoring receivables closely, understanding which customers may be at risk, and taking an aggressive stance on collections.
Suppliers, likewise, are susceptible to liquidity problems and bankruptcy. Maintain close relationships with key suppliers and consider taking measures to defend against supply chain interruptions. This could include extending lines of credit to key suppliers or pre-paying for orders.
Above all, F&A teams should model cash flow scenarios on a regular basis and evaluate potential short, medium, and long-term outcomes.
Continue to Run Lean
Of course, the most obvious strategy for preserving cash is to cut expenses. Companies should consider aggressively trimming certain costs and potentially deferring some capital expenditures. Review budgets frequently and consider lowering the threshold for purchased approvals to ensure that cash outflows are prioritized effectively.
If your company has received funding through the Paycheck Protection Program (PPP), however, you need to be cognizant of the specific terms under which loan balances can be forgiven. PPP loan forgiveness is contingent upon maintaining certain staffing levels and salaries through June 30. Pending legislation could provide greater flexibility, but it is not yet known what that might look like, or whether it will happen at all. The situation continues to evolve, and CFOs should ensure that the finance team understands the rules clearly and can maximize the benefit of these programs to the company.
Don’t Be Afraid to Invest (Wisely)
Although it makes sense to defer some capital expenditures, businesses should avoid being penny wise and pound foolish. In other words, don’t be afraid to invest, but do it wisely. PwC has noted that since the onset of the coronavirus crisis, “digital investments” have become a priority for many companies seeking to run lean and strengthen their capabilities as virtual organizations. F&A will play an important role in evaluating return on investment for new capital outlays.
The key to resiliency, as McKinsey’s Cindy Levy has noted, lies in making tough decisions early in a crisis, shedding nonperforming assets as soon as trouble appears on the horizon. Levy goes on to note that those same companies are quick to invest in recovery, when there is a strong business case to be made. In today’s environment, automation and virtualization are priorities worth the investment.
Follow the Numbers Closely
Above all, business leaders must keep a closer eye on the numbers than ever before. In a volatile situation or highly uncertain environment, vigilance is critical to your company’s success. Powerful analysis tools are indispensable at a time like this.
insightsoftware offers a range of reporting and analysis tools that empower F&A teams to access information in real time from all of the various software systems that the organization uses, and to build powerful analytical models to help make sense of the past, understand the present, and model potential future scenarios. Unlike traditional reporting tools, which require specialized IT expertise, insightsoftware offers tools that give front-line finance and accounting workers the power and flexibility to build reports themselves, without depending on the IT department or expensive outside consultants. Real-time access to information ensures that reports reflect what is happening in the business currently, rather than providing a look back “through the rearview mirror.”
As we look ahead to the remainder of 2020, uncertainty will continue to prevail. As businesses move out of triage mode and into recovery, the role of the F&A team within the organization will be of critical importance.