Published by linker 5
Posted on November 30, 2020
By Mohamed Chaudry, Group CFO of FoodHub
2020 has been one of the toughest years in recent memory for business. There hasn’t been a sector left unaffected by COVID-19, whether negatively or positively. We’ve been in recession, out of recession, then teetering on the edge of the infamous double-dip. Which, at the time of writing, looks impossible to avoid. For CFOs, the financial rudder of any business, the trials have been significant. Many businesses have found themselves unprepared for the pandemic and left floundering in its wake, with the prospect of a potentially lengthy financial downturn to traverse. So, how can CFOs hope to navigate through the financial fallout from COVID-19, and successfully guide their businesses to the other side?
Strategies to Help CFOs Traverse the COVID-19 Recovery Period
The role of the CFO has evolved in recent years, moving from pure financial management to technical implementation, futureproofing, and strategic analysis and planning. And they are all integral to surviving a protracted recession. And the focus should be on five key areas.
Scenario planning vs Forecasting
Who could have seen the pandemic coming 18 months ago? Who would even have considered that the disruption caused by a virus would have such overwhelming worldwide consequences a year after it was first detected? It’s the rare business that will have put adequate protective measures in place. But now that we are all well aware of the damage COVID-19 has wreaked, it would be remiss to fail to plan for ongoing and upcoming eventualities.
Mohamed Chaudry
Right now, CFOs should be scenario planning for the length and route the pandemic might take. Which industries are likely to recover first? And which countries will be first to come out of the recession?
CFOs need to be crisis planning. Developing strategies to preserve cash, streamline expenses, manage working capital and secure short-term funding. But stratagems also need to be put in place to defend against loss of critical talent (accounting for staff sickness), bolster IT developments, and manage risk.
“Wind Tunnelling” business strategy through each potential scenario will reveal the most robust tactics to carry your business through all potential developments and forecasts.
Bolster liquidity
Liquidity management practices vary from business to business. But at a time of crisis, monthly actions are no longer enough. Liquidity requires daily attention. Working cashflow needs to be generated for the coming months. To do this, CFOS should be:
Cost Cutting
The previous point feeds directly into this one. Cutting costs is always a necessary component of recession navigation. But there are ways of doing it without swingeing cuts. No matter how tight a ship you think you’re running, there is always room for operational improvement, from supply chain to asset optimisation. Bolstering productivity in your workforce, whether through new tech implementation or streamlining processes, can reduce lost hours. Non-core business units and overheads usually present an easy option for pain-free cost reduction. While negotiating better pricing and credit terms from suppliers can be an easy step to enhanced cashflow.
The important thing to remember is that cost cutting should never be a knee jerk reaction. And overly aggressive strategies can be detrimental. You still need to be investing more than rivals to ensure that post-recession, you’re able to put your foot back on the accelerator and be ahead of the competition.
M&A
Mergers and acquisitions are an inherent part of any recession. But 2020 has seen a significant fall in M&A activity. This will partly be due to potential buyers waiting to snatch a bargain. But if you’re in the market to increase your portfolio through the acquisition of competitors, look for those that are fundamentally sound, but are facing cashflow issues at reasonable valuations.
If cashflow has become a weighty concern for your business, merging can also be worth considering. Despite the loss of autonomy, mergers can present a wealth of opportunity, if they are handled correctly. And it’s better than facing full closure.
Creating scalable growth is the best way for businesses to weather any financial crisis. But in the meantime, battening down the hatches and taking adequate precautions is a sensible option for CFOs looking to steer their businesses through the COVID-19 fall out.
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