While companies in some regions are moving forward post Covid-19, others are still struggling. Finance professionals must be ready to show the way, says Sameer Madan
This article was first published in the July/August 2020 International edition of Accounting and Business magazine.
Every economic catastrophe leads to change in the business environment to some degree. Post Covid-19, the environment will be radically different – indeed it may never be the same again.
Almost overnight, lives, businesses and economies have had to change and adapt just to survive, and there is now no doubt that for many industries the disruption will continue for a long time.
The storm and its aftermath will pass in the end, of course, but it is no exaggeration to say that almost every commercial enterprise will be forced to reconfigure its operating models to adjust to what will be the new normal.
How businesses adapt will depend in large part on the ingenuity and leadership of accountants and finance professionals. There are multiple levels on which they must take action:
Overhaul the cost structure
In coming months companies must continue to act to cut more costs, and uncover new savings and efficiencies by eliminating waste. They must also become more nimble, flexible and resilient to market threats. Accountants need to work with their stakeholders to help them identify areas where productivity can be improved. Whether it’s using more digital channels for selling, or making costs variable, delivering a sustainable cost structure without impacting customer, resiliency, compliance and security requirements is the key.
Turbo charge FP&A
The financial planning & analysis (FP&A) team will have to step up and use all the resources at its command to provide a reliable projection on both revenue and expenses. Companies will have to draw on the best and most experienced people to develop these forecasts.
They will need to develop processes to gather information such as intelligence from internal and external stakeholders (especially top customers), economic trends, industry oversights, news scanning and insights from social media. They will need to trust their instincts, but remain objective, using professional scepticism to confront the facts. A balance between a top-down and bottom-up approach will be the most effective.
The FP&A team should monitor actual performance on a real-time basis and course-correct as necessary. Remember when numbers are down, people are down too – enhance their effectiveness by combining business experience with the best available evidence and remove human bias.
Customers and vendors generally lengthen their timeframes for payment when confronting cashflow and credit challenges. Closely managing receivables and dealing quickly with disputes can help mitigate the risk of payment defaults and delays.
Remember both your customers and your vendors are facing the same issues and the right balance must be struck. Reach out to both for realistic estimates on which to model your cashflows. Allow for a special treatment for key customers and suppliers.
Accountants should revisit their understanding of current debt arrangements. There might be potential breaches of financial covenants, material adverse changes, and/or cross-default triggers that may compromise access to core funding and liquidity. Be proactive with financiers to seek waivers and get ahead of issues. Secure new lines of credit to take advantage of low interest rates. Take up government loans and grants and other deferments on offer.
Take a fresh look at risks
The definition of risks will change significantly, especially for the near term and maybe even for the medium term. Whether it’s strengthening or redefining the credit checks for your customers and suppliers or re-evaluation of your global supply chain, risks need to be viewed through a different prism.
The rapid impact of Covid-19 on global economies has underlined the importance of a resilient and sustainable operational model. Many companies and business models may not survive at all. Operational resilience and improvements will become critical, which means ensuring seamless integration of upstream and downstream activities to ensure business continuity. Whether it’s the business continuity plan, procurement, inventory management, manufacturing, or forecasting – all should be seamlessly integrated more than ever before into a sustainable business model.
Ensure security and comply
The post Covid-19 environment will require continuing edits to your business model, evolving selling channels and increasing interconnectivity, digital platforms, 24x7 access and work from home. Each of these can drive increased security risks, exposing the business to threats and potential fraud.
Work with your extended organisation, especially IT, to ensure security and compliance are embedded across all operations and technologies. Ensure compliance with regulatory filings and disclosures on a timely basis.
Protect your people
Be clear about how your people can support one another, and virtualise the finance function and other parts of the extended organisation so that they can operate effectively amid potential long-term physical distancing.
Finance professionals need to improve their ability to put a narrative around the numbers and assumptions, expressing themselves more crisply than ever before. The key is to communicate frequently with critical stakeholders and give them logical conclusions rather than adopting a traditional accounting focus. Work on your emotional intelligence to help drive objective decisions.
In summary, finance professionals have a key leadership role to play in getting their companies back in business. As keen observers of macroeconomic trends and with a bird’s eye view of all internal processes, they are well positioned to propose changes and to reinvent business models.
Sameer Madan is director of finance at Agilent Technologies, based at its New Delhi office in India.
"Remember both your customers and your vendors are facing the same issues and the right balance must be struck. Reach out to both"