CFOs – can you play a bad hand well?

Written by MD Simon Roderick. Originally published on Fram Search Oct 2020.

COVID may well have caused many finance teams to pivot, almost overnight, from growth and expansion planning to “survival” mode. Certainly there can’t be a time in history when the economic landscape has changed so fast. We’ve gone from calm waters to recession and back to some sort of recovery in record time. Therefore, it’s fair to say the the conditions prevalent today have placed finance teams under great stress and there isn’t a roadmap for how to manage through a pandemic. We are in unprecedented times.

During the financial crisis there was a lack of credit, whereas today we have CBILS, Bounceback loans and mortgage forbearance. Amazingly, during September, mortgage approvals rose to their highest levels since 2007. In 2008/9 Central Banks took a relatively large amount of time to consider their response, whereas the central bank response was rapid and rates are much lower than in the 1991 recession, for example. So whilst there are normally some similarities between recessions, the COVID pandemic has brought it’s own set of challenges and this has put pressure on finance teams to provide guidance in an ever changing landscape. At the same time, finance leaders are having to grapple with the same pressures other departments may also be dealing with such as: where are staff working from, motivating teams remotely, and for industries that are enormously impacted they may be asked to do more with less headcount.

Below we’ve listed four areas we feel are key to CFO’s in navigating their team and business through these challenges.

Forecasting

CFO - COVID - corona crisis

Forecasting in an uncertain climate certainly has its obstacles. In a 2019 interview, Matthew Pieroni (lead partner of Deloitte’s Digital Finance Transformation practice) stated that “we are moving into a world of continuous forecasting – real time forecasting” and that the assistance of technology combined with the right skillset can ultimately lead to forecasting and budgeting merging within the next 3-5 years. However, nobody could have predicted what 2020 would bring.

This year has certainly been rocky and unpredictable, and forecasting is arguably one of the most important parts of navigating through the challenges the industry faces at the moment. Although it is presently more of a challenge to plan for the months ahead, having a clear idea of what is coming ultimately leads to a successful business. Forecasting for different scenarios is key and CFO’s need to look at which countries are recovering quicker, as well as the different paths this virus has previously taken and can still take moving forward. Being more prepared for a number of eventualities will hopefully lead to more success, and firms should have well equipped teams to assist CFO’s and CEO’s with this.

Cash preservation

When the pandemic hit almost seven months ago, CFOs mostly focused on the survival of their teams and business through cash preservation. They had to make temporary changes in order to sustain the business in the long term and release more cash, such as preserving sales activities and converting fixed costs to variable costs. However, a recent report by McKinsey suggests that CFOs can now use this crisis in more of a positive way by focusing more on sustainable cash excellence moving forward, but it can be slightly more challenging in unpredictable times.

CFOs have worked hard to mostly ensure that short-term actions are put in place to benefit the long-term plan and this appears to have paid off. However, with a second lockdown not totally out of the picture, some CFOs are now being asked to make moves again that will stabilise firms and support their business long-term. How much longer is this sustainable, and at what cost?

Leadership

The modern CFO is very visible and works in tandem with all functions of a business. They are part of the senior leadership team, they will certainly be involved in the hardest of decisions regarding headcount, and they are also departmental heads.

We wrote a recent article regarding leadership in a crisis inspired by pilot Chelsey Sullenberger, who successfully landed his damaged plane in the Hudson saving all 155 passengers on the plane. However, the main themes our research highlighted are:

  1. We need to understand our emotions and how our brains work under pressure
  2. We need to understand what decisions need to be made now and those that can be delayed
  3. We need to work with others, but not to stress them
  4. Don’t fear making the wrong decisions
  5. Focus
  6. Implementing a decision effectively

Again, this pandemic has brought another unique challenge, and that’s trying to manage a team and to look after their emotional wellbeing, all whilst working remotely.

Identifying Opportunities

Nathan Rothschild was believed to have commented on uncertain times that “great fortunes are made when cannonballs fall in the harbour, not when violins play in the ballroom.” For firms in a strong position the current situation will inevitably throw up opportunities. Within the specialist markets we cover, we feel private equity will be presented with huge opportunities. Outside of financial services, we’ve already seen Next swoop on Victoria’s Secret and we’re sure this will be one of many high profile transactions we will see across a variety of sectors. If identifying these opportunities doesn’t fall to CFOs, the workload of transactions will inevitably fall to them and their teams.

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