CPE

Coronavirus risks for CFOs

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Of all the COVID-19-related disruptions businesses have experienced, the inability to make accurate forecasts has been one of the most profound for financial professionals. The pandemic’s effect on consumer spending, corporate investment and supply chain management have contributed to the uncertainty. 

Beyond the current moment, it’s unclear when the US economy will reach a full recovery, not to mention what that will require and what kind of impact it will have on organizations in the meantime. All told, uncertainty plays the most significant role in how the coronavirus is affecting CFOs. 

“The time needed for a return to a steady normal state is unknown,” says Timothy Gearty, Becker’s national lead instructor. “Are we in a medically induced coma as an economy, and once we get past this the economy will come roaring back? There are many people who believe that. On the other side, there are many people who say, Wait a minute: we’ve had over 50 million people unemployed, and not all of them are going to get their jobs back, because so many companies have ultimately bottomed out and declared bankruptcy or gone out of business entirely. That could translate into a three-to-five-year period before we’re back to a normal state.”

The 5 biggest coronavirus risks for CFOs

It can be overwhelming to cover all the issues about the coronavirus that are affecting CFOs. But certain themes have emerged as the most pressing concerns. Gearty outlined what CFOs have indicated are their biggest COVID-19-related risks.

  1. The safety and wellbeing of their employees, customers and vendors. Keeping all stakeholders healthy is crucial to every aspect of an organization’s operations. “That’s paramount in polling in what organizations see as their greatest single challenge,” Gearty says.

  2. Customer demand and their ability to pay. According to Gearty, CFOs have to assess the changing dynamic of their existing customers in terms of their needs and wants, as well as their ability to afford those items, and adjust their forecasts appropriately.

  3. Liquidity. In times of uncertainty, cash is king, and liquidity is paramount for every organization.

  4. The performance and productivity of remote employees. With the corporate world suddenly thrown into a remote work environment, an immediate concern was whether employees would be as productive as they’d been in the office. So far, the answer has been yes. “Most organizations have been pleasantly surprised,” Gearty says. “This has been a remarkable feat for most at-home remote workers. They’re working as hard, maybe even harder, and being quite productive. But of course, it’s concerning.”

  5. The integrity of the supply chain. This is one of the more hidden coronavirus risks for CFOs. The pandemic exposed many of the vulnerabilities in U.S. supply chains, whether it was distribution of food, consumer goods or medical equipment. For CFOs, the challenge is in determining the impact of supply chain disruptions on business performance and corporate strategy, and how to adjust spending to account for supply chain risks. 

Other COVID-19 risks for CFOs

Along with the concerns detailed above, COVID-19 has altered other operational and employee dynamics, including: 

  • Deferring or canceling new investments 

  • Expanding digital offerings and IT spending (the exception to deferring new investments) 

  • Changing financing plans

  • Adjusting guidance on costs

  • Considering hiring freezes

  • Limiting the use of contractors

  • Restricting travel

  • Reassessing office space and leases

  • Adopting automation 

  • Inventory management, including determining the demand for just-in-time inventory

How to navigate the coronavirus risks affecting CFOs

It’s clear that COVID-19 is affecting CFOs on multiple fronts. Businesses and consumers alike are adjusting their spending. What the next round of federal stimulus aid will look like is still to be determined. No one knows how customers will adjust their behaviors in the long term. Meanwhile, diminished liquidity is an ongoing concern for organizations. When considering how coronavirus is affecting CFOs, risk mitigation becomes essential.

“One of the things controllers and CFOs need to look at is cash budgeting on a weekly basis,” Gearty says. “You have to analyze what comes in, what needs to go out, what you’d like to shell out.” 

With that in mind, renegotiating payment terms with vendors becomes crucial. But Gearty points out that organizations should also look to do the same with their customers. “While you’d love to accelerate their payments, they’re having financial struggles, too. And if you don’t work with them, they may choose to find another company that will work with them, and you may lose them forever. You have to balance out how strict you are on your credit terms with how much your vendors will work with you.”

Gearty adds that in an uncertain environment, scenario testing is an important risk mitigation tool. “You should be doing projections two to three years out,” he says. “Do a best-case, worst-case and middle-case scenario, and you have to constantly update those budgets as you go along. The spread right now will be quite significant—it could be a year between the best- and worst-case scenario. But as we get into next year, it will start narrowing down to a few months and then just a few weeks. It’s important to be aware of this and make business plans toward how customers are acting today, what are they looking for, and how can you contain costs so you can come out of this roaring out of the gate.”

How the coronavirus is affecting CFOs will continue to be a challenge for the foreseeable future. In the meantime, Gearty says CFOs can prepare their organizations for an eventual recovery with the following tactics:

  • Filling critical roles with the right people

  • Bolstering productivity and innovation

  • Bolstering your balance sheet 

  • Adopting long-term changes that work, such remote working or online-only operations