Chief financial officers are playing a key role in helping their companies cope with the fallout from the coronavirus pandemic and the economic devastation it’s causing, according to officials from the Institute of Management Accountants.
As the finance function takes on a greater operational role at companies, CFOs often find themselves acting as the key decision makers along with the CEO in guiding corporate strategy to deal with the effects of the pandemic on their company.
“When you think about a crisis that impacts just about your whole value chain, including your financial sustainability, who better than the CFO to be the calm, stabilizing influence in this environment and other environments,” said Institute of Management Accountants president and CEO Jeff Thomson. “The CFO is not only the one who helps ensure the organization has a strong balance sheet and cash position to ride through tragedies, pandemics or disasters like this, but the CFO really has their pulse on the entire enterprise operation.”
Thomson (pictured), a former CFO at ATT, noted that many chief operating officers report to the CFO, and in many companies the CFO is effectively the COO. “CFOs are heavily involved in strategy and technology choices,” he added. “Starting from their position as the owner and holder of the books, that has expanded and evolved over the course of the past couple-plus decades to a much more influential and higher enterprise position. CFOs at publicly traded companies are talking to investors, analysts, customers and potential partners in a business combination.”
At the IMA, he looks to his own organization’s CFO, Doreen Remmen. “We’re a small business and we’re trying to figure out and interpret the Families First Coronavirus Response Act,” said Thomson. “We want to do what’s right by employees and have a sustainable business. As in a lot of small companies, our CFO is our accountant. She also has controllership, she has FPA, strategy, operations, technology and HR. In many small companies, HR reports to the CFO, which is why CFOs tend to be the point people, even more so in times of crisis. Do we have adequate funding? What are the SBA forgiveness loans all about in the Response Act? Are we going to get a payroll tax credit for paid sick leave for families who have school-age children whose school has been closed down? The table stakes for the CFO as the go-to calming influence are a sound balance sheet, cash flow and internal controls, but beyond that is a whole multitude of direct or indirect responsibilities. Make no mistake about it: There are a lot of lessons learned from organizations in how their internal controls held up in the face of COVID-19.”
Many companies are struggling to maintain cash flow during the pandemic, and the CFO can help with that crucial function. “Liquidity is probably the biggest issue right now,” said Thomson. “That’s what the $2 trillion in this relief act was meant for — to soften the blow. Hopefully it’s not too late. Hopefully there won’t be a need for another wave. Even navigating the maze of how to apply for an SBA loan through your bank when the banks are closed, do you go to the drive-through window? Our Small Business Committee is putting out a guide and more resources to follow to help small businesses navigate the CARES Act and the Families First Response Act.”
The Small Business Planning during COVID-19 report was released this week by the IMA.
“A lot of firms are facing questions as to their viability,” said Raef Lawson, vice president of research at the IMA. “Management accountants are key to helping companies with cash flows. How much cash does the firm have? How much can it borrow? They need to assess the company’s operations. Does the company have enough cash to stay in business for however long the company expects to be impacted by the virus? It could be three months or six months or longer. They need to do a holistic assessment of the operation. The supply chain folks have to look at the impact of the coronavirus on their suppliers, and perhaps find alternate sources of supply. With the coronavirus having new hotspots on a daily basis, that can be a challenge. We need to look at our contracts with our suppliers. If we can’t continue operations, can we terminate our purchases? It can impact the cash flow of a company. A lot of companies are facing cash crunches currently. You need to examine the impact on employees. You want to try to handle the impact on them as humanely and ethically as possible, while still maintaining organizational viability.”
Companies are learning some hard lessons from the pandemic that they may be able to apply in the future with contingency planning, including the need for much of the work to be done remotely.
“There are probably more lessons learned for the future in terms of just coping,” said Thomson. “For example, with this flurry of work from home, where you went from perhaps no work from home to as-needed work from home to an instant-on work from home, learn from home, study from home, teach from home.”
“A lot of staff are working from home, and it’s not business as usual for most companies,” said Lawson. “We have a financial reporting committee that meets periodically, and they can’t just go there. Everyone is so busy addressing business issues. It’s a challenging time, and management accountants have an important role to play in how their firms cope and address this coronavirus.”
Lawson recommended companies also look at their insurance documents to see whether events like this are covered, and if they have business disruption insurance. “Organizations need to look at their leases and discuss them with their landlords if they’re closed by the government,” he added. “Loan agreements need to be examined. Are loan covenants being violated by the impact of the pandemic? Can the organization work with their lender to modify those agreements? In terms of risks, look at the impact on employees. A lot of employers are letting their employees go or furloughing them. You don’t want to be in the position of having to rehire all your employees and they’re not here. You need to help employees survive during this period of hardship so they’ll want to come back when times change.”
After the crisis eventually passes, organizations are going to have better plans in place. “One reason why I think we’re going to come out of this stronger is because people want to commit to being learners and learning organizations,” said Thomson. “I think about some of the things that CFOs can really help with. Some are really basic, like we didn’t have a work-from-home policy in place before, and we do now. Or we didn’t have crisis management, business continuity and disaster recovery plans in place. We do now. We weren’t making particularly efficient use of collaboration and work-in-process types of product. Well, we do now. Connecting the two elements — the coronavirus pandemic and the CFO — the CFOs because of their enterprise-wide knowledge and influence as generalists are really more critical now than ever.”