Covid-19’s unprecedented impact on the global society and economy makes it a Black Swan event. CFO’s immediate response across organizations in the wake of the crises was to contain costs; understanding what expenses are critical and need to be maintained (especially critical IT expenditure to support remote work options, including bandwidth, VPN access and boosting cyber security) and where the cuts need to be maid. 

Regardless of whether your business was prepared for an emergency or, CFO’s can use this opportunity as a transformation opportunity for their companies and create changes, build lessons while they adapt solutions:

Financial Resources Required – Firstly, understand how to deal with the immediate crises including any health related expenses for your people and remote WFH IT investments

Contain Costs – HR costs are typically the highest outflow for small medium enterprises. While layoffs for many companies are a last resort, however, approach to reducing costs can include a staggered approach to reducing payrolls; reviewing bonuses and considering layoffs. Many employees have taken paycuts; CEOs are sacrificing their salaries to retain employees and employees maybe willing to defer certain financial payments.

Freeze Expenditure  – non-critical costs such as marketing or planned expenses on hardware, supplies for office must be frozen

Transition to Web-Based Tools – Transitioning to social media for marketing and group chats; video-conferencing and existing IT tools are cost management strategies to maintain productivity while minimizing expenditure

Renegotiate Agreements – Contracts with suppliers; tenancy agreements and interest payments to banks all need to be renegotiated to enable longer-term liquidity

Apply learning from the current crises to modify and enhance your response to a future financial emergency, which maybe radically different to what you know. Harvard Business Review emphasizes, ‘even while the crisis is unfolding, responses and impacts should be documented to be later reviewed and lessons distilled.’

Nobody is crying wolf these days; the wolf is here!  Accept the reality that businesses are operating in an unprecedented world event with multi-dimensional implications.  Therefore, understanding the possible outcomes communicating worst-case outcomes to everybody connected to our businesses is good business today.

Improved, rolling, ongoing, two-way communication is the best way to convey the hard realities we are facing. A CFO’s primary responsibility is facing sponsors but in this crisis it’s also very important to address all other stakeholders for the company. Keep in mind that our employees, suppliers, vendors, customers, shareholders, regulators, public-at-large all are also facing the same crisis and will not only appreciate the transparency – on an ongoing basis – but likely also share experiences, possible solutions or least relate to everything you are going through.

Immediately, all businesses need to have a Communications task force working very closely with the CFO and other C-suite executives and be the go-to for everybody in the company.

Employees and internal teams need to understand the health, financial and market impacts the company is facing and may yet face. Possibly some key people may become unavailable because of health reasons. The liquidity shortage may need to shutter or slow down some operations affecting jobs, digital connectivity – as we work at home or quarantine ourselves – may change some business activities all together resulting in some positions becoming redundant (not just currently, but also in our distant future).

A clear message now is vital; in terms of positioning your organization’s brand.

Vendors & suppliers, local or international are similar, they would be facing a myriad of blockages – from lockdowns, movement orders, shipping shutdowns, component & part supply issues in addition to the health crisis. They may have decided to shut-down temporarily and may need longer/larger commitments or expedite fees in order to prioritize their supply. The business with the best back & forth communication will likely recover the situation better than its rivals.

Customer service cannot be canned responses anymore. Demands are changing and may be more urgent now depending on the industry. In others, customers may want to delay payments. A two-way real time communication approach, possibly help them find additional credit or cash so that these customers can prioritize you over others, will at least sustain sales & liquidity while keeping your customers satisfied. And with the supply chain in the loop (previous para) customers can be better informed.

For the CFO the most critical outside contact is the main sponsor, whether shareholders, private equity, bond or credit providers. Its important to proactively convey the current reality, and the assumptions about the near future to them. As we go through this crisis, our understanding of the situation as well as the reality will change also. It will stay important to convey that on an ongoing basis.

The current situation analysis, the short-term impact on top line, liquidity, supply chain, staffing and bottom line is important to understand, and communicate at a higher frequency than in the pre-Covid era.  It’s a tool to elevate the company’s narrative; brand management while being transparent about damage control; strategies to mitigate short term disasters and plan.

Investors are seeing similar crisis and creative solutions in other companies they invest in and are well positioned to help & guide. Take that opportunity and talk to them. We have believe and relay the confidence that this crisis will not last, but it will hurt a lot…  We will come out of it; many businesses will survive, markets will pop back up, commodities will find demand and customers will be back. We have to survive the storm and how we survive, we should share with us key stakeholders, while honoring that our health; their health, their well-being and family’s well-being, is the primary win in this pandemic.

At the end of the 1^st quarter of 2020, we are left with more uncertainty than certainty. Putting out fires is what we do all day but the rest of this year looks like Steve McQueen’s ‘Towering Inferno’ (no disrespect to co-star Paul Newman but McQueen was the fire chief).

It’s not possible to foresee the entire fallout from within the Corona-Crisis yet, but as developments unfold business management will have to constantly do a 3,6,9-month analysis on an on-going rolling basis.

The next 3 months i.e. the 2^nd quarters of 2020 is going to be the worst most businesses will face. This Corona-Crisis is not just a one-off health & economic crises; there are likely multiple waves.  And there is the socio-economic potential disorder to consider too. The primary concern remains the health; physical & mental well-being of the businesses extended family – employees, their loved ones, suppliers, customers, investors. But in addition it will be a very trying time to maintain cash-flow liquidity, which is going to be very tight.

Following a crisis management approach to minimize damage, one of the tools businesses should implement weekly, is the rolling analysis of cash flows, liquidity and revenues as they reassess and renegotiate terms of payments to suppliers, vendors & employees. Communicate to all concerned to dial back expectations, if any, from 2Q since top line, bottom line and cash will be affected.

With a weekly approach to reviewing key ratios, near term visibility will improve and additionally businesses should immediately start to look at short-term liquidity improvement actions – tap extra credit lines, discount prices to boost sales, reduce costs, increase working capital, delay or renegotiate financial obligations. Most senior management have a worst-case scenario for their business, it’s time to freshen up that dusty tome and look at all sensitivity analysis related to that.

By the time the 3^rd and 4^th quarters roll around it will be abundantly clear as to the extent of the Corona damage – the world will likely not have ended but it’s definitely going to be worse than what listed company CEOs & CFOs are admitting to currently. Businesses that don’t have a stock price to worry about should have the guts to take an unbiased view and implement new budgeting & planning with reconsidered inputs, diversify supply chains, reconfigure employee mix, outsource non-essential functions, innovate product lines, consider newer distribution & revenue models. This while implementing strict, rolling, weekly performance stress tests on profit & loss, balance sheet and cash flow so that a view can be built on the potential impact to the business in the face of the looming supply, demand and commodity shocks.