CFOs Facing the Herculean Task

Covid19 pandemic that appeared in the last quarter of 2019-20, has suddenly caught the World community completely off guard, causing widespread infection to all people across all age groups crossing the geographic boundaries. This created widespread health hazards resulting in devastation. Humanity suddenly found to be gasping for breath.

As an immediate response, Govts of many countries declared lockdown in economic activities, advising people to stay at home and to maintain social distance when outside so as to avoid the infection. Obviously, it has taken an economic toll in almost all societies causing losses of businesses, employment and profits. For business, it is being termed as the Black Swan event forcing a change in work habits and personal lifestyle of all engaged in economic activities. Work from Home suddenly became the trend. CFOs being in forefront of business management, felt this tremor first along with their CEOs.

The Herculean Task

While coming to terms with the newfound lifestyle and work habits thrust on all including CFOs by Covid19, stress level of CFOs got particularly heightened from their sky-high anxiety of maintaining the wheel of business rolling at a time when everything got uncertain, production and sales level at its lowest ebb, business prospect became absolutely uncertain like the potential mutation that the virus itself would take.

This is when all financial commitments remain unchanged, be it employees’ salaries for the ensuing periods, contract wages, MSME vendors and other such urgent matters. Govt mandated no job loss, no pay cut when revenue sources itself got choked up like the breathings of corona infected people, resulting into dried up cash flows, budget figures became rudimentary due to its loss of context and relevance thereby becoming wasteful exercise of yesteryear.

CFOs are suddenly left with a herculean task of meeting both ends, when one end remained completely sticky as customers delays payment, working capital becomes short supply, bank’s prudential scrutiny becomes double the normal if not more. Not only the urgent working capital management, other aspects of their role also became equally tough such as forecasting revenue and profits, risk management, managing treasury, capital budgeting, etc.. When all bases of performance and productivity lose its value, forecasting becomes a mere wild goose chase. Risk management during such a Black Swan event becomes an experience of navigating a boat in a turbulent sea during hostile natural phenomena like storms.

Take another example, say of tax planning, when Govt itself is completely focussed only on how to save lives of its citizens, business and industry issues continuous SOS to Govt for tax concessions and other hand holding financial assistance for their survival at a time when Govt itself is in severe financial mess due to its sudden drop in tax collections coupled with very high resource requirement of funding health care emergency, distress assistance as well as increased administrative cost of ensuring implementation of pandemic protocol. Govts across geographies including India started looking for good Samaritans for generous contributions to its crisis management of increased costs and efforts of health care. Thus, predicting tax policy of the various Govt become very costly exercise. Planning for tax impact on business becomes hazardous.

How should CFOs face this challenge?

Facing challenging times require strength of nerve as we sometimes say extraordinary times requires extraordinary solutions. There is also an old saying that tough time would pass but a tough person would last. So, what precisely CFOs should do? First of all, they should brainstorm the situation with their colleagues and peers to either develop or come out with some innovative solution, may even be in the box solution such as to tide over immediate difficulty of paying salaries and wages, a solution could be temporary withholding of salaries of relatively high earning employees or even making this retention interest-bearing so as to make it palatable to such employees.

Of course, management needs to demonstrate empathy to all its employees, particularly those who fall in the lower-income level to sustain their continuing commitments. Instead of outright layoffs, perhaps, unpaid leave for some period, part reduction of wages may be better options. Similar consideration should also be extended to its MSME and other vendors. Some mutual accommodation in the spirit of give and take would be necessary to safely navigate the situation by all for longer mutual benefits.  End of the day it is the co-operation and wholehearted support by all associates that makes a company successful and sustainable and crisis situation may be an opportunity to cement relationship with the business associates, based on transparency and appreciation of mutual difficulties. As regards, financial planning and forecasting in the current situation of absolute unpredictability, perhaps there would be need for financial plan C, D, E, depending on the possible alternative scenarios that can be visualized.

Deep analysis of controllable, uncontrollable revenue expenditure vis-a-vis its value creation, need to be done so as to precisely appreciate the revenue expenditure that can be deferred or curtailed altogether while some new expenditures become mandatory like cost of personal hygiene of employees as well as office premises, additional infrastructure cost for working from home for more number of employees. Similar way, it has to be kept in mind that current unprecedented situation has changed the risk profile, cashflow assumptions, etc of some of the projects and thus capital expenditure plan should not only be relooked and validated as most of the important assumptions might have undergone a complete change, but also the need to look for new capital expenditure opportunity that may have emerged out of the current crisis.

All these changes throw additional workload on the CFOs. So, what are the additional skills/attributes CFOs would need to bring to the table, over and above their professional expertise to steer the company through this turbulent time? I can only visualize the following personal attributes that would help them to withstand this crisis. These are their confidence level, tenacity, adaptability to frequent changes, positivity, empathy, ability to stay calm even under grave threat, etc overall the nerves of steel.      

Are you ready to face the challenge? 

Overcoming this humongous challenge would certainly be a testing time for all CFOs, finance professionals as well as personal acumen and attributes. I sincerely believe that our rigorous training would certainly come handy in this crisis situation. We would emerge victoriously and in this process, gather further strength of steel to our ever-expanding skill and competence level.