Saturday, August 08, 2020

CFOs must make smart moves to thrive after COVID-19

Jun 10. 2020
Marisa Aunhavichai
Marisa Aunhavichai
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By Special to The Nation Thailand

Covid-19 has affected millions of people worldwide, claiming hundreds of thousands of lives and drastically impacting the global economy. However, the full impacts of the disease are still unknown as the contagion continues to spread.

Meanwhile almost every business sector has been hit hard, with profits plummeting, liquidity scarce, and financial restructuring or even bankruptcy now common.

However, the dark picture also contains a bright spot, namely opportunities to acquire talent and assets at very competitive prices – but only if companies are agile enough to cope with changes demanded by the “new normal” for business.

In the heat of the moment, chief financial officers (CFOs) must adapt quickly to the virus crisis if their companies are to prosper. We suggest that CFOs consider the following imperatives and take appropriate action.

First, liquidity management has become a top priority. Many business sectors are now struggling with a lack of liquidity due to low demand, declining sales volume, and the shrinking stock market caused by market volatility and uncertainty.

Companies with a high debt-to-equity ratio are struggling to stop their credit rating from being downgraded, while even those with strong balance sheets are facing higher financial risks related to assets such as cash, receivables, short-term loans, etc.

Thus, it is important for CFOs to make “scenario plans” to ensure the company’s cash flow viability, reforecasting the short-term liquidity position on even a weekly basis.

They must also look for opportunities to accelerate collection of receivables, shorten the cash conversion cycle, seek out alternative cash sources, diversify new lines of credit and arrange current debt by requesting debt covenant resets and/or waivers with financing partners.

Additionally, CFOs should not ignore the financial risks for key trading partners, customers and suppliers. To reduce company risk, they must carefully monitor and quickly respond to changes in customer behaviour, while diversifying suppliers and third-party partners.

The second imperative concerns internal and external relationship management. During the time of social distancing, clear and frequent communication is difficult since the majority of people are currently sheltering at home.

This requires individuals to work remotely and businesses to promote work virtualisation.

To engage with external stakeholders, CFOs should encourage companies to provide current and forward-looking information to their investors and to proactively reach out to regulators for financing negotiations and resilience purposes.

For internal business operations, finance seems better suited to remote working practices than manufacturing and other functions.

CFOs should engage with HR and IT departments to ensure active interaction among staff with efficient systems and data in place, while managing any extra cyber-risk. Usage of digital communication platforms like Skype, ZOOM, Microsoft team and Google Meet is rocketing during this time. Companies need to consider the pros and cons of this tech, balancing convenience against concerns over security, privacy, user-friendliness and the price factor. Those staff unable to work from home require new ways of organising workspaces for social distancing.

Operations must be enhanced under the continuous impact of new remote working conditions and market disruption. It’s vital for organisations to stay aware of negative shifts in demand and disruption of supply during the current crisis.

In addition, CFOs should consider the whole value chain when they assess the needs to change and/or enhance finance and business operations. When scenario planning, they should also consider initiatives to transform operations so as to optimise cost and operational excellence to ensure the company can bounce back after the Covid-19 is defeated.

Currently, many firms are focused on minimising operational costs and managing the bottom line via SG&A, procurement and the supply chain.

For example, converting fixed costs to variable costs via outsourcing, contracted manufacturing, leasing the transport fleet, and third-party warehousing, can potentially preserve your core business operations while simultaneously providing companies flexibility on the fringes and creating long-term cash flow viability.

Integrating digital tech into daily operations where possible is another development.

Besides virtualisation of work, companies should also consider reconfiguring their marketing, go-to-market, and supply chain operations with greater automation, leaner processes, and more real-time data flow, which will help them to respond to future disruption efficiently.

The virus pandemic is a global crisis that’s attacking businesses in every industry, generating big losses and huge changes. From an optimistic viewpoint, though, it comes as a test of how businesses can prepare for, confront and survive the crisis and rebound to embrace the new normal in its aftermath.

Post-crisis, the business ecosystem will no longer be the same. Remote-working tools will disrupt traditional ways of operating, forcing workers and businesses into different communication and working styles.

New business models will emerge in response to the social-distancing world, such as cultivation of direct-to-customer (D2C) models. It is crucial for business owners, executives and management to rethink the way they currently operate and look to gain long-term competitive advantages, not only to survive but to get ahead in the “new normal”.

Marisa Aunhavichai,

Partner, Consulting Services,

Deloitte Thailand

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