The pandemic, and the subsequent economic fallout has been an enormous challenge for businesses around the world. It’s clear that some are handling it better than others, adapting to change and finding new opportunities in order to survive - or even thrive - despite the global downturn.
Our CFO Mark Jenkins recently sat down with Chris Argent of generationcfo.com to share his insights and learnings about the pandemic so far. He argued that the finance team has a key strategic role to play in gaining a competitive advantage during the crisis.
Here are the key takeaways from the webinar:
Forget the competition
One of the main difficulties of a crisis is its unpredictability. There are only certain things you can do, because there are only certain things you know for sure. Therefore it’s essential to focus on the things you can control as a business, and mitigate risks in areas you can’t.
It’s a time to look inward, to focus on doing better at the things your business is already good at, and add value for your customers. Review and adapt where you can. Agility is everything.
Of course, in order to do that, you need financial breathing space. That means looking at three main areas:
The stability of the business - do we have the reserves we need to cover us in the short term? Is the business strong enough overall to weather the storm?
Liquidity - do we have enough cash? This is by far the most important factor in determining whether a business can progress and grow. Now is the time to reduce wastage and improve efficiency across the board.
Profitability - will we be able to maintain profits (which will eventually drive liquidity)?
The role of the finance department
Now is when the finance team needs to be proactive and work front of house in order to manage cash flow. It should be a service department rather than a back office function.
Taking the approach of ‘financial business partners’ means allocating accountants to departments across the business. This deeper involvement can help stakeholders drive efficiency, understand trends and avoid any looming icebergs.
Mark and his team used MHR’s IBM Planning Analytics tool to look in-depth at departments across the whole business. That involved analysing data to identify trends, assess contributions and plan capacity. The tool gives a complete picture of the business, enabling Mark to get the right resources in the right place at the right time. This ability supports not only MHR as a business, but its customer base as well.
And of course, another key role for Finance is in the forecasting of the P&L, balance sheet and cash flow, with the latter being most important in order to control the cost-base and maintain strong liquidity.
Internal processes and controls
During a crisis, it’s natural to want to play defence, entrench the business and prepare to firefight, especially if you don’t have the cash flow to think medium or long term. But if you can get your business in a position where your cash flow is solid for the next few months, you have scope to proactively improve your internal processes and controls.
It can even be used as a mini change management exercise. Are your current internal processes fit for purpose, from the standpoint of the crisis? What does ‘good’ look like right now? Take the opportunity to continually reevaluate and adapt your processes as the crisis evolves. That could mean finding ways to reduce wastage, automate processes, and getting things right the first time.
Scenario planning and forecasting
The next step is to apply those data analysis tools to understand the implications of the crisis for your business, especially if your customers have also been affected. Modelling a range of possible outcomes for revenues, costs and cash flows can help you prepare for multiple scenarios.
This forecasting should be continuous, so you can develop flexible, agile strategies for impactful resource allocation and investment. In MHR’s case, Mark’s key strategy was cost control to protect cash flow, but without stifling growth.
Support of key stakeholders
It’s more important than ever to protect long term partnerships with staff, customers and creditors, despite the challenges posed by the crisis. Some businesses will be fortunate enough to avoid furloughing and redundancy, if they have been able adapt quickly, and redeploy staff resource to areas where they are most needed. In turn, that can help them maintain the same levels of customer support, without personnel changes.
And think about what the crisis means for your customers. How can you help them? Continuously reviewing your products and services to remain relevant to their changing needs enables you to add customer value and cement growth. Finally, your creditors are a key part of your business success. Keep suppliers on side by continuing to pay on term so you have a viable business on the other side of the crisis.
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