The Role of CFOs in the Pandemic

by Marcus Wagner

The obstacles CFOs and finance teams have faced and the solutions they've discovered.

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The COVID-19 pandemic and its associated economic impact brought a wave of unforeseen challenges to company financial leaders, forcing many to make difficult and strategic decisions in order to remain in operation as businesses around them shuttered. In reviewing those businesses that remain afloat, it is clear that many factors contributed to the businesses’ resiliency, but one constant that was seen in nearly all businesses that are surviving or even thriving during this pandemic was having the ability to adapt quickly. For many CFOs and other finance and accounting professionals, that ability was made possible by advanced financial software. Before we dive into winning solutions, let’s get a grasp of the hurdles accounting departments were faced with at the onset of the pandemic.

One of the greatest challenges seen was the drop in revenue because of the forced closures, which negatively impacted cash flows. Businesses were pushed to look for additional sources of funding, anywhere from bank debt to PPP loans. Another obstacle CFOs faced was the need to completely reforecast the rest of 2020 as the situation evolved. Finance leaders were formulating 10-20 models in the first two months of the pandemic – an activity that usually only happens an on annual or quarterly basis. Additionally, quick cost reductions were needed to help preserve cash flows, but it was difficult to strategically assess which areas to reduce as leaders didn’t know how long shutdowns were going to last.

To cut or not to cut

Not all finance leaders responded the same. Some businesses chose to take on substantial debt, while others adopted rigid austerity measures combined with substantial cost-cutting in order to stay in business. Those who chose to make reductions did so in different ways. Some suffered from a death by a thousand (business) cuts, meaning that instead of cutting once and cutting deep, they did a series of cuts over time. While this may have seemed like a measured approach, the downside is that if things don’t get better and your company needs to continue to make more cuts, employee morale will plummet as they start to question when their job might be next to go. Others ended up waiting too long, therefore quickly depleting cash reserves, making it difficult to stay afloat until things rebounded. Some went too far and cut strategic investments or high-performing staff without considering the long-term effects. Doing so left the business hobbled and unable to withstand the pickup in demand when things started to come back around.

The most successful companies were the ones who cut early, cut deeply and cut once. These businesses started out by evaluating low performers – the bottom 10% of people that are not performing to company standard and don’t have the potential to help the business post-pandemic. Other areas that were trimmed were non-essential or luxury items (like office perks), non-revenue generating or even administrative in nature. However, a finance executive must be very strategic and think long-term when possible. For example, say you have a group of talented people in R&D. Though they might not be providing immediate value during a downturn, when things normalize, this talent might be difficult to recruit back or you may find yourself in the position of having to hire an entirely new R&D team. Recruiting and onboarding often have substantial costs, meaning the layoffs of the existing team and having to eventually replace them could ultimately end up costing your organization more than keeping them on staff in the first place. When making difficult cost-cutting decisions, especially involving talent, finance executives should consider the lasting impact such a cut will make. That R&D team you considered cutting could help to develop new products, strategic weapons that will give you a competitive advantage when business comes back.

Smart businesses also made sure that they carefully strategized communications when making cuts. With staff working remotely, management doesn’t have the ability to meet in person, making it difficult to gauge employee sentiment. At the same time, written communications like company-wide emails have their limitations -- employees do not have the ability to see leadership and their body language or hear the tone of their voice, which can lead to misunderstandings or speculation about how the business is actually performing. It’s critical for CEOs and CFOs to have a communications strategy to ensure that everyone from top to bottom is on the same page. Businesses that made this a key focus fared better in terms of employee engagement compared to those that didn’t. These well-performing business leaders conveyed confidence, not desperation, when discussing this situation with employees. They were able to strike the right balance of telling the truth about business uncertainty while also maintaining optimism. This approach was key as employees needed to hear from leaders that they are taking right decisions early to ensure survival of the business and to emerge stronger from the crisis.

Finance digital transformation: Once a luxury, now a necessity

Though many of the positive results above involved strategic planning and communications, advanced financial management software has enabled business leaders to realize the power of the cloud and analytics during a crisis. COVID-19 has taught finance professionals that embracing the technological changes brought on by what many are calling the “digital transformation” of the past 20 years is a key to survival. Those who embraced this transformation have weathered this downturn better than those who didn’t.

As the pandemic unfolded, many companies realized they needed to take their focus off top-line revenue growth and focus more on maximizing profitability from their existing customer base. Companies who had already implemented modern financial management software were able to use advanced analytics to uncover trends within their customer base, finding ways to increase profitability and even grow revenue. Instead of looking outward for growth, they looked inward using all the digital tools, software and resources at their disposal to create new ways to provide value, additional services, and add-on products to generate growth and profitability.

They couldn’t have accomplished this without the right software, which provided them the real-time analytics and insights necessary to react and adapt to what was happening in their customer base. Management teams who had already adopted digital transformation before COVID realized they had the tools needed to survive. Some businesses even accelerated investments in digital transformation during the pandemic in spite of the headwinds, realizing making these strategic investments was key to surviving this, and the next crisis.


Advice for the future

As the pandemic continues, so will the challenges. Business leaders will not only need to be prepared to deal with an unpredictable economy but also plan for the effects of hurricanes, a global depression, civil unrest and more.

Business managers should continue to seek further opportunities for digital transformation, including outsourcing certain non-core functions. Outsourcing non-core components of the finance function to a company who does it professionally can provide higher quality outcomes, like more real-time and more granular data to inform business decisions, while allowing the management team to focus their attention on more strategic activities. Firms should seek out outsourcing providers who specialize in their industry and are experts in both finance and accounting as well as technology. Not only can they operate the finance function more efficiently and more effectively than most internal departments can, but they can also help curate, integrate and optimize all the needed technologies. This is a compelling value proposition in today’s ever changing and complex world.

Marcus Wagner is the Founder and CEO of AcctTwo.