Consider these areas as pandemic restrictions ease

Most of Europe — with Russia being a notable exception — appears to be past the worst of the initial COVID-19 outbreak. As a result, governments across the continent are gradually easing lockdown restrictions and encouraging businesses to reopen.

Easing is happening at different rates in different countries. There is also a risk that progress in a certain market could be slowed, or even reversed, if an exit from lockdown leads to a sudden uplift in COVID-19 cases. In Germany, for example, a spike in infections occurred within days of restrictions being eased.

While businesses in different countries are experiencing easing in different ways, the ongoing crisis presents them similar challenges. In particular, how do they balance the prioritisation of employee health with ensuring financial and operational survival? In a recent videoconference, members of the Association of International Certified Professional Accountants’ Regional Advisory Panel for Europe explained how they intend to help their businesses address these challenges. Their top pieces of advice for other finance leaders were as follows:

1. Stay focused on cash. Companies with strong balance sheets will be in the best position to survive this crisis. Cash therefore remains the number one priority for businesses in every sector. In Germany, for example, SMEs are asking management accountants for support with developing proper cash management processes. In Northern Ireland, organisations are asking their finance teams to provide monthly — rather than quarterly — reports on cash. The crisis has also highlighted the need to create a culture of transparency around cash, with subsidiaries having a more open relationship with the company’s headquarters.  

2. Proactively manage the risks. COVID-19 has increased the volume and the severity of the risks that businesses face. These risks range from inadequate safety measures that fail to protect the wellbeing of staff through to supply chain disruption, customers failing to pay bills, difficulties securing funding, and operational pressures in certain sectors as businesses increase capacity to meet demand. Another significant risk — in the medium term — relates to mergers and acquisitions. While companies are putting off acquisitions for now, the history of the 2008–2009 financial crisis suggests that there could be a rush to buy distressed businesses at a later point in time. In this situation, companies could overpay for the assets they buy, which could compromise their own viability further down the line.

3. Combine scenario analysis with stress testing. As lockdown restrictions are slowly eased, businesses need a variety of plans to accommodate different situations, depending on factors such as supply chain capacity and variations in customer demand. They also need to stress-test these different scenarios to foresee issues that might arise. When planning, however, it’s important for finance teams to remember that a pandemic on the scale of COVID-19 is a very rare event. Also, we don’t yet know how it will impact on individual and organisational behaviour in the long run. So, while they should learn from the crisis, organisations should also avoid overreacting to it and basing decision-making on unrealistic assumptions about the future. They should also be wary of embarking on a comprehensive overhaul of all working practices and systems in the near term.

4. Make effective use of data. By gathering data, analysing it, and drawing conclusions from it, businesses can both navigate the current crisis and prepare for other black swan events in the future. Data needs to be governed and managed in a planned way, however. In the absence of dedicated data experts, finance teams can show the business how it can be in control of data from start to finish. Effective cash flow management already relies on companies having the ability to analyse reliable data. With economic conditions likely to remain volatile for the next couple of years at least, companies will be under pressure to control costs, reduce risk, increase sales, serve customers more efficiently, and generally do business in ever faster cycles. Data will be critical to success.

5. Exploit technology to transform the business. The large-scale switch to remote working in Europe has generally been regarded as a major accomplishment. So, companies have an opportunity to exploit this development by reducing their expenditure on real estate. Going forward, finance teams may also want to accelerate any planned robotic process automation projects that could enhance the efficiency of the organisation. In addition, they may seek out tools that enable them to better collaborate across the business so that they can align their financial plans with corporate objectives and operational tactics.

6. Be sensitive to the pressures on your HR team. Today HR teams are having to juggle a host of competing priorities. They are supporting staff who may have suffered a bereavement or serious illness as a result of COVID-19, be coping with a difficult personal situation such as domestic abuse, or be feeling anxious about their jobs and their future. Psychologically, this will be very stressful for them. HR teams are also having to focus on workplace safety so that they can support the safe reopening of their businesses and understand the specific nature of government job retention schemes. At a time like this, finance teams can support HR by providing practical advice and responding to requests for information in a timely manner.

While finance leaders know what they’re dealing with today, they have very limited visibility over what tomorrow will look like. As of yet, they cannot deduce which changes in customer and organisational behaviour are temporary and which foretell a permanent evolution in the business environment. It is also unclear how governments will continue to support businesses going forward and how their stimulus packages will impact on economies in the longer term.

The COVID-19 pandemic is more than a health crisis. It is also a decisive economic force that is likely to fundamentally reshape how we interact with other people and how we conduct business. Finance teams will play a vital role in interpreting the impact of the crisis on their own organisations and the business environment broadly. They will also help to ensure that their businesses evolve in a sustainable and resilient way that enables them to survive and thrive in the months and years to follow.  

For more news and reporting on the coronavirus and how management accountants can handle challenges related to the pandemic, visit FM’s coronavirus resources page.

— Andrew Harding, FCMA, CGMA, is chief executive–Management Accounting, and Jakub Bejnarowicz is regional director–Europe, both at the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Oliver Rowe, an FM magazine senior editor, at Oliver.Rowe@aicpa-cima.com.