Energy services finance leader: We had to manage cash in a crisisA Nigerian CFO of an oil and gas services company shares the strategies and tools he used to lead his finance team through the worst of the COVID-19 crisis.
Editor’s note: This article is part of “A Year of Evolution: CFOs on 2021” series featuring insights from finance leaders across industries, and their COVID-19 lessons and 2021 plans. To receive weekly updates on this series, sign up for our CGMA Advantage newsletter.
Japheth Jev, ACMA, CGMA, is the CFO at Triumph Power and Gas Systems Limited, an energy servicing company based in Lagos, Nigeria. The company has 102 employees and $1.3 billion in annual revenue and provides support services such as generators, turbines, and marine equipment to global oil and gas companies operating in Nigeria.
The COVID-19 crisis had an immediate impact on Triumph, according to Jev. Several major projects, on which the company’s 2020 budget was based, were cancelled or deferred indefinitely as the pandemic spread. Concurrently, the finance department had to cope with the technological challenges that come with quickly transitioning to remote working.
FM magazine spoke to Jev recently about how the COVID-19 blew up his 2020 budget, how cash management became critical, and the most essential soft skill he needed to navigate the crisis.
What initial actions did you take to deal with this crisis, particularly the lack of revenue coming in?
Jev: Our strategy was to combat the destruction of our revenue caused by the crisis.
We let the management and the board understand that this crisis would definitely affect us, and it was going to affect our customers' businesses and destroy some of our revenue lines. We assessed the risk and ascertained the level of impact that we are going to suffer. And we also introduced scenario planning. To be frank, I never appreciated the importance of scenario planning until the advent of COVID-19.
We adjusted the budget, preparing for the worst-case scenario, as well as the medium-case scenario and then the good-case scenario. We also modelled the cash flow and made sure that we defended our cash flows.
We measured, at any point in time, the minimum cash flow balance sufficient to keep the operations running. We kept the ongoing projects that were not cancelled or deferred running at optimal capacity so we could achieve as many milestones as possible and recognise significant revenue from the projects.
You mentioned instant budget constraints as projects were cancelled. What were your strategies for conserving cash and managing cash flow? And how did you set your priorities for cash management, both in the beginning and throughout the summer, and even till now?
Jev: We needed to build a war chest, and we quickly came out with a cash management strategy. We overhauled our cash management policies and strategies; the receivables management processes and the payables were quickly revamped. Such that we had to collapse and match the incoming payments with the outgoing payments. It was the first step, the radical step, anyway, that we had to take. And that step affected some stakeholders because we got to deal with some vendors and suppliers that are seemingly small- and medium-scale in nature. Such vendors and suppliers, ordinarily, will not be able to give you that extended supplier financing.
They want to have their money back in 30 days, to keep their businesses afloat. But the reality that we were confronted with made us take hard decisions, such as collapsing all suppliers' and vendors' payments and extending the payments to match our inflows. That was the first thing that we did.
The second thing we did was reduce our working capital planning. Traditionally, we have been used to monthly working capital planning and quarterly working capital planning.
But we had to reduce it to weekly planning because the weekly planning keeps you ahead of the curve. At the beginning of the week, you need to know how much cash inflow you are expecting. And then, you need to know how much expected outflow you have to let go out. And you must make sure that, within that space of a week, you have adequate cash flow to meet the expected outflow.
We also made sure, in that plan, that we had built an inventory of cash. For the size of my business, we had to build a buffer of about $1 million cash. At any point in time, we had a buffer of $1 million of unconstrained, unrestricted cash. These were some of the quick strategies we put in place to effectively manage cash.
In addition, we suspended all discretionary payments that were not germane and critical to the operations of the business. We prioritised and reprioritised our expenditures, such that only expenditures that were critical to the survival and existence of our business were being incurred. All other expenditures were deferred.
Where is your business now? And now that we've been through about nine months of this crisis, what are your priorities?
Jev: Yes, right now I can say that we are seeing light at the end of the tunnel in our business. Our eyes are really on 2021, not 2020.
We have navigated a crisis and fast-tracked the execution of some of the projects that were not cancelled nor deferred, and achieved as many milestones as possible. And the achievement of those milestones helped us recognise a significant amount of revenue that we feel comfortable with, vis-à-vis our revised budget for the year 2020. In view of this, we are looking at the collection of our outstanding receivables. Our attention is still so much on cash flows because we still have a good amount of cash flows outside there with customers.
We have already set machinery in motion to begin the preparation of 2021 budget.
And the interesting thing is that the lessons of disruptions and uncertainty that we have learned in the year 2020 are turbocharging our 2021 budget. Our 2021 budget is strictly going to reflect a higher degree of uncertainty. Because it has become common knowledge to business leaders right now that the world is uncertain. Any business model, any financial plan, any budget that does not factor in uncertainty up to 70% to 80% is bound to fall.
How have the lessons of 2020 changed your relationship to digital technology?
Jev: The lessons of 2020 have had huge impacts on our drive to adopt technology and fast-track our digital transformation processes. We had been using SAP before 2020 to drive our business processes. But we have been taking it easy to 2020.
But this crisis and the first lockdown forced us to renew our commitment to digital transformation. We have increased our budget for technology, especially cloud-based technologies that could be accessed anywhere.
We are moving our financial system workflow to the cloud. We are already reviewing proposals from IT consultancies, and we hope to make all these decisions in the remaining few months of the year so that we get a project on-track as quick as possible.
What's the most important soft skill that you have had to use with your team in order to get through this crisis?
Jev: The most important leadership skill that I have used is empathy. During the lockdown, it took a stressful toll on me as a leader of the team. I had to consciously work on my mental health to overcome the stress. I learned that my mental health could be severely strained because of the disruption, the crisis, the pace of work, the remote work, and the marathon meetings.
That was a lesson for me that because if you could be stretched and stressed and strained as a leader, then how much more would your team members be under this stress? I had to take it easy with them. So even when somebody dropped the ball, I didn't get to be harsh.
All the team needed was empathy, encouragement, and kind words.
Rapid fire questions
What has been your biggest lesson from this pandemic?
Jev: Yes, this is a very important question because the global pandemic crisis taught me the importance of effective cash management and cash budgeting. I understood that if I didn’t take cash management seriously, we would not sustain the existing projects that were the only hope that we had left, given that most of the projects were deferred or cancelled.
What one piece of technology is a must-have in your 2021 budget?
Jev: We are investing massively in cloud-based technology and moving our entire financial system workflow to the cloud.
Looking ahead, what is one skill you want to develop in your team?
Jev: Empathy and emotional intelligence remain my top skillsets in 2021. If you take the perspective of empathy, I think you would get much more result than the traditional performance management perspectives.
— Drew Adamek (Andrew.Adamek@aicpa-cima.com) is an FM magazine senior editor.