How the best CFOs are leading their organisations through a crisis.

How the best CFOs are leading their organisations through a crisis.

By DigitalCFO Asia

Date: 1st May 2020

We are in unprecedented times. The COVID-19 pandemic is turning out to be the biggest economic disruption since independence, far exceeding the repercussions caused by the Asian Financial Crisis (1997), 9-11 (2001), SARS (2002-2004), Lehman Brothers Collapse (2008) & H1N1 Outbreak (2009). The United Nations (UN) estimated that the total economic loss in 2020 caused by COVID-19 is around USD 1 trillion or more.

Organizations in Asia are scrambling to put together strategies to sustain and tide their businesses through this challenging times. Organisations are facing key problems like supply chain disruption, travel restriction, substantial loss of business revenue and cybersecurity concerns. The worst-hit industries such as aviation & hospitality are reporting record-breaking loss in revenues. Singapore Airlines has reported its first ever financial year loss of SGD 212 million in its 48-year history. These are unchartered waters to all organisations.   

CFOs have a key responsibility to lead an organisation’s frontline battle against COVID-19. As guardians of the company’s financial health, CFOs play a central role in ensuring a sound financial footing for the survival of the business, and also in preparing the business to thrive once the situation has improved. Digital CFO Asia outlines 3 key areas in which the best CFOs are leading their organisations through the pandemic.

Optimize cash reserves

One of the immediate challenges that CFOs must address is cash liquidity. Countries all over the world are imposing lockdowns on cities (Hubei, China) and even country-wide (Italy, Spain, France, etc). Due to such lockdowns, 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, exploring lines of credits & temporary loans and staying updated on any government support schemes for businesses.

Prepare for unexpected scenarios

The only thing certain in these current times is the uncertainty and the highly volatile situation. Things can change within a day, or less. Countries have implemented travel restrictions within days. New social distancing laws are been passed within hours.  Businesses have been affected beyond their worst case scenarios.

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 have to re-define the entire financial planning and analysis (FP&A) which was most likely done in pre-COVID19 times.  The FP&A has to be nimble & flexible enough to change with the press of a button due to current volatile situation. CFOs can consider automating their FP&A with finance softwares such as Jedox or LucaNet.

Communicate internally

Finally, the CFO must take lead in proactively communicating the organization’s financial crisis strategy to employees, stakeholders, boards of directors and investors.

The organization’s priority has to be cash preservation and capital optimization, and this must be clearly communicated organization-wide. All business units are to understand “why this matters now”, what their specific role is in upholding the “cash culture” and buy into this new 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. If the organizations have a stakeholder communications agency like Black Sun Plc Asia Pacific, CFOs should then work closely with the agency to communicate authentically to their stakeholders.

A crisis of this scale will not only reinvent organizations, but also reveal vulnerabilities and opportunities for performance improvement. Not only that, it will indirectly accelerate digital transformation by forcing organisations to adopt technology to drive productivity when labor is unavailable.

In conclusion, this is the silver lining – businesses will come out of this storm more resilient, more lean, and well-equipped with the tools and innovation strategies that will help them take on another unprecedented challenge, when it inevitably comes.