The ongoing economic crisis caused by the coronavirus pandemic is forcing businesses to re-evaluate their spending, staffing, and structure. Company leaders are looking to their CFOs and management accountants to advise them on how to navigate the unique financial challenges they face as a result of the outbreak.
Three financial leaders with experience guiding companies through times of economic turmoil, including the 2008 recession, say there are specific ways CFOs and other leaders can handle the coronavirus crisis moving forward.
On matters from communications to cash flow, the experts offered advice about how to react quickly, stay calm, focus on what’s important, and be willing to let some things go. The advice is especially important for leaders experiencing their first financial disaster.
Save more cash
“Cash is king. … Never, ever in my career, and I’ve been doing this for 35 years, has that statement been more true than right now,” said Brenda Morris CPA (inactive), CGMA, who lives in the Seattle area in the US and is a partner with CSuite Financial Partners based in Manhattan Beach, California. She is on the Association’s Americas Regional Advisory Panel and also serves as a consultant and coach for several public and private businesses, including Boot Barn and Duluth Trading Company.
Morris works with Fortune 500 and Fortune 1000 companies, some of which “have a lot of cash on the balance sheet”, she said, but fixed costs such as payroll and building rent and mortgages can add up quickly, eating into those reserves.
“It’s pretty amazing how fast companies can burn through what seemed to be a very adequate balance sheet,” she said.
Morris advises companies to create a robust cash sensitivity model and run as many scenarios as possible to see how much money would be needed in a crisis. Some of the models might include the financial impacts of furloughing employees, figuring out ways to quickly drive up sales, getting more aggressive in negotiations, or finding more investors.
“You step it up and figure it out,” Morris said. “React quickly. Don't languish too long in making some of the hard decisions. Those are the [companies] that’ll make it through.”
Bob Sannerud, CPA, CGMA, the CFO of the US air medical company Life Link III, and chair of the Association’s Americas Regional Advisory Panel, knows the stress of not having enough cash on hand. He joined Life Link III during the 2008 financial crisis and found the business “in dire straits”.
“We had four days of cash when I came on board and came in to turn around the company,” he said.
Since then, he has done some financial engineering to correct the company’s cash flow, working with leaders of various departments to discuss business challenges and priorities. Today, the company is stronger financially and will likely survive the uncertainty of the coronavirus outbreak, Sannerud said.
“If it goes on for a year, well, all bets are off. But in the short term, we feel we can handle it,” he said.
Create a disaster recovery plan
Companies should create disaster recovery plans and select a task force of leaders to discuss the what-ifs, Morris said. If possible, they should test out their plans, but “it’s rare for companies to actually do exercises or dry runs. [Some] companies don't have the bandwidth to run catastrophic scenarios as exercises and just sort of see what happens,” she said. “That’s an investment.”
Her work with various businesses and boards has allowed her to see how different companies are responding to the coronavirus crisis. That insight has convinced her how important it is for companies to have a team of people investigating what is working and what isn’t before, during, and after an economic crisis.
She is leading a coronavirus crisis response team for one of the boards she sits on and said her goal is to limit distractions for company leaders so they can focus on the priority areas of the business.
Having a disaster plan is essential in the US broadcast company Ralph Bender, CPA, CGMA, serves as CFO.
“We’ve been through floods, hurricanes, [and] now this,” he said, noting the financial and logistical challenges the media industry is facing during the coronavirus outbreak. Bender is the CFO of Manship Media, a family-owned broadcasting group that runs TV stations in Baton Rouge, Louisiana, and the Rio Grande Valley in Texas.
“Things are going to be dire. … But most people will find ways to get through this,” Bender said. “It’s important to have a disaster recovery plan … to not just have something on paper, but to have tried things out.”
Life Link III transports more than 2,000 patients a year by helicopter and aeroplane ambulance in the US states of Minnesota and Wisconsin.
Some of the company’s first responders have been on the front lines of the coronavirus pandemic, leading them to ask questions about their own personal safety when dealing with sick patients, what protective gear they will have access to, and whether their jobs are in jeopardy, according to Sannerud.
The company saw a decreased flight volume in March, partly due to weather but mostly due to the coronavirus outbreak, he said, but there are no plans to let go of staff or close any of the eight bases where they are located.
“For us, the challenge has been really making sure our people are being taken care of and making sure that they’re assured that we’ve got their best interests in mind as we go forward,” Sannerud said.
Providing employees, stakeholders, and customers with timely, transparent communication is vital during tumultuous times like these, Sannerud said. Companies need to establish a central communications hub and make sure the various leaders are speaking with one voice.
“It helps build the trust, because we are able to clearly state what we know, what we don’t know, and what we’re doing,” Sannerud said, noting that communication shouldn’t be too negative or overly optimistic.
Life Link III leaders decided to reach out to employees’ family members as well to assure them that the company cares and to acknowledge the stress they are under. That kind of personal touch can help build credibility and calm any fears spouses or other family members might have, Sannerud said.
Be prepared to pivot, but don’t panic
When Bender and his company, Manship Media, first realised how big the coronavirus outbreak might be, they quickly pivoted to a new plan to prepare for the possibility that staff might need to work from home.
Using some of the company’s cash reserves, they bought 30 Google Chromebooks for employees to take home. The decision paid off as businesses across the country, including news media, moved to more remote work in an effort to stop the coronavirus from spreading.
“It was under a $7,500 investment, and look at the rewards,” Bender said. “People are working. But more importantly, people are working safely.”
CFOs and other financial leaders need to think of themselves as chief strategists and not just tell company leaders not to spend any money during a crisis, according to Bender.
“Be calm and do not panic,” he said. “You calmly look into details. What’s essential? What’s not?”
Sannerud agreed and said it’s crucial that financial leaders “be prepared to pivot”.
“Just because you made a plan yesterday doesn’t mean it’s going to hold water today,” he said. “Be adaptable, and be willing to make a change based on information.”
The best way to get that information is to talk with employees on the front lines of the work, Sannerud said. Take time to ask them what they are seeing and experiencing and use that information to guide your business plans during times of VUCA (volatility, uncertainty, complexity and ambiguity), according to Sannerud.
Focus on what’s important and what you can control, and forget the rest
Sannerud is used to forecasting long-term operations for Life Link III, but the coronavirus pandemic has made budgeting nearly impossible with the uncertainty his business and others are facing.
“I can’t forecast operations out much more than the next three months, and even that’s not exactly crystal-clear,” he said.
Instead, Sannerud has tried to focus on the limited things he can control, such as providing calm and steady leadership during a crisis, being transparent with employees about the state of the business, and keeping a set routine even while working from home.
He is usually in the office by 6am, so he decided to keep the same hours while working from home. When he is finished with work, he makes sure to exercise, usually by biking or taking a walk with his wife. He also tries to find humour in each day, limit the amount of media he consumes, and focus on his mental and physical health.
“Those are all things you can control,” he said.
Morris’s biggest piece of advice for financial leaders is to determine what’s most important to your business and not get distracted by outside noise. Ask yourself: What is the biggest and most impactful issue facing the company?
“Have a course of action that keeps you focused each day,” she said.
Bender suggested focusing on what your company does well and where it can have the most success. For his company, that meant letting go of a newspaper and radio stations it owned several years ago and focusing on its two TV stations. Downsizing the company caused it to be more profitable and workable, he said.
Now, as he and his company navigate the coronavirus pandemic, they are again looking at what their focus should be to get through this crisis. This time, it has less to do with the bottom line.
“As CPAs, we hate to say, ‘Who cares about the bottom line?’ But right now, that’s not the most important thing to us,” Bender said. “There’s an opportunity for companies to show their employees that their values are not just about a bottom line, but they’re about welfare of employees, stockholders, and customers.”
Bender said he understands some CFOs and leaders don’t have the same financial advantages as his company. To them, he has this message: “Stay focused. Stay safe. For God’s sake, keep a sense of humour. This has all of us on edge.”
— Kelly Hinchcliffe is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contact Drew Adamek, an FM magazine senior editor, at Andrew.Adamek@aicpa-cima.com.