To the CFO: What’s the strategy in times of crisis
A strategy focused on cash flow and improving productivity is crucial for a company to survive and thrive through a crisis says McKinsey, exploring the role of the CFO in troubled times.
The way companies navigate through times of crisis plays a crucial role in the resilience of the business. Important decisions need to be made in terms of how the business handles market imbalances, and much of this comes down to the CFO.
In fact, the way a financial leader steers a business in times of stress can prove crucial to stabilizing the company and positioning it for a successful recovery, according to research McKinsey has conducted on businesses that outperformed competitors coming out of previous recessions.
Perhaps more so than any crisis before it, the extent and duration of the current global shutdown is unknown. It is impossible to predict where we will be in three months’ time, let alone forecast a three-year plan. CFOs are having to consider a number of scenarios that could see companies begin financial recovery this year, or in the worst case, remain in crisis mode well into 2021.
Launch a cash war room
An important tenant of this scenario planning is prioritizing cash flow. As cash flows strengthen, a company is in a better position to withstand the uncertainty and negative consequences of a crisis.
Among several protective and proactive actions, McKinsey suggest the CFO should focus on launching a cash war room.
Companies must be willing to regularly review opportunities available to raise capital so as to improve cash flows, as well as locate any areas of the businesses where savings can be made. By working proactively to strengthen financial preparedness, the CFO can evaluate where and how the company can provide additional liquidity.
This can require new and creative ways of thinking. One prudent example businesses can explore is the opportunity to release equity in fixed assets that are bought up-front. The leading CFOs are supporting business efforts to improve cash flow by using sale and leaseback of assets such as IT equipment, cars and production machines.
Studies by McKinsey suggest that companies that pursued productivity improvements more often and more frequently than others, created capacity for growth during recovery.
The CFO’s evaluation of core critical areas such as R&D and IT could reveal hidden opportunities to optimize the company’s asset base and thereby improve productivity in these areas.
McKinsey emphasizes opportunities to implement digital-first business procedures, including collaboration tools that can be crucial to efficiency. Never has this been more relevant than at a time when businesses all over the world are grappling with how to ensure their workforces are able to work remotely and remain ultra-mobile to protect business continuity in the future.
Protecting a company throughout this crisis is of course the responsibility of the entire executive team – no CFO can tackle a crisis alone. But without healthy cash flow and high levels of productivity, it is exceedingly difficult to put the necessary measures in place to support both employees and customers. Implementing a strategic plan, led by the CFO, is an important step towards weathering this storm and ensuring there is hope of future growth on the other side.
Carmen Ene, CEO at 3stepIT