How do CFOs reshape today to reinvent their tomorrow? How do CFOs reshape today to reinvent their tomorrow?

Authors
Don Charles

EY Global Corporate Finance Leader

Results-oriented business leader. Drives and establishes transformation in challenging conditions. Technical leader. Value creator. Musician.

Dave Helmer

EY Global Tax and Finance Operate Leader

Helping companies reimagine the tax and finance function.Speaker. Passionate runner. Husband and father of seven.

Tony Klimas

EY Global Performance Improvement Finance Leader

Focused on bringing the best we have to offer to CFOs and other finance leaders.

Ben Taylor

EY UK&I Financial Accounting Advisory Services Leader

Innovative thought leader on the future of finance and assurance. Techno-optimist with an eye on emerging ethical issues. Fan of design, custom motorbikes and eclectic music. Husband and father.

4 minute read 29 May 2020
Related topics COVID-19

Bold choices to transform the financial function can improve resilience and drive a faster recovery.

This article is part of a series about COVID-19 enterprise resilience.

For many companies, the economic impact of COVID-19 has pushed the need to reimagine, reshape and reinvent future financial and investor fundamentals to the top of the boardroom agenda. Unresolved issues that the C-suite have been debating since the global financial crisis can no longer wait. It is no longer a case of “can we afford to?” but “can we afford not to?” Central to resolving these fundamental challenges will be the CFO. Finance touches every aspect of the company.

Adapting operations and building resilience

CFOs reassessing their firm’s financial resilience in the post-COVID-19 world will need to consider several key actions:

1. Build a cash flow plan to inform strategy

As they navigate ongoing volatility, every step the CFO will take – from building a cash flow plan to advising the board of directors – begins with potential scenarios of the future. The critical element is having integrated financial scenarios for the firm, supported by cost and revenue forecasts and based on multiple macroeconomic, sector and governmental intervention scenarios. 

The scenario planning should be holistic. EY teams recommend a top-down approach – modeling the pandemic, assessing its economic impact, and creating working scenarios specific to your industry. While rigorous and exacting, the process should be flexible to adjust for changing conditions. These core assumptions are then established as anchor points for financial planning and strategy.

COVID-19 impact

72%

of executives say they need more and better data to anticipate future trends. (Source: EY Capital Confidence Barometer)

2. Create a new plan to manage today’s realities

Given the expected up-and-down, sawtooth-shaped economic recovery from COVID-19 recession, many companies will take some time to regain their financial confidence. Revenues are likely to be slow to return, cash reserves may be drawn down, and for many firms, this could mean a period of chronic shortage of liquidity and operating capital.

The old plans won’t work. The CFO needs to consider creating a comprehensive financial strategy, with steps specific to today’s realities:

  • Ensuring liquidity – an aggressive plan to source cash, reduce costs, and build a multi-week cash flow plan
  • Managing stakeholders – reducing risks through collaboration with creditors, suppliers, shareholders and regulators
  • Staying compliant – with more complex accounting and tax issues arising from a more volatile environment and exceptional events
  • Sourcing new capital – while it may be challenging, engaging with new sources to capitalize the company for the future
3. Align with government recovery programs

World governments have announced massive support and stimulus funding. But while this is a potential lifeline to many companies, it is also a bewildering mix of loans, grants, tax breaks and subsidies.  

CFOs should understand and seek out stimulus funding that their firms are qualified for.  A first step is to operate a global monitoring system to alert them of stimulus programs and their changes. The regularly updated EY global tax policy tracker helps you monitor rapidly emerging government policy and stimulus responses to COVID-19. A dedicated team should be set up to pursue and win government support. Finally, post-funding conditions such as hiring levels and payback terms must be monitored carefully for compliance.

They also need to be sure that any commitments entered into with state aid do not hamper recovery growth plans.

4. Prepare for the return and rise of a new workforce

Companies will need to manage a physical return to work that prioritizes health and safety, while supporting higher productivity. They also need to reimagine and restructure their workforce to meet changing business needs post-COVID-19.

Companies should consider the workforce capabilities and capacity needed and perform scenario modeling that takes into account three variables – the well-being of employees, impact on operations and the financial result. Furthermore, leading companies are exploring bold new ways to operate their tax and finance function. Many are beginning to explore new operating models where they invest in strategic tax and finance talent, while co-sourcing routine compliance activities with third parties who are making significant investments in standardized processes, technology and delivery centers of excellence.

COVID-19 has also accelerated remote work practices, and there is no going back. Enterprises must proactively manage these practices – providing the necessary collaborative technologies and remote working policies, accelerating digital upskilling, digitization of documents, implementation of RPA, and ensuring cyber-security – to increase workforce productivity and engagement.

5. Build resilience into the enterprise 

The challenges from COVID-19 have demonstrated the brittleness of today’s supply chains and business models. Many company operations – liquidity management, supply chains, outbound logistics – were built to squeeze out cost. But in the current environment, their inflexibility has led to a liquidity crisis, line stoppages and component shortages that have threatened the life of many firms. 

CFOs, working with COOs and other operations personnel, should conduct a systematic risk analysis of financial and operating processes. Potential breakage points – low cash reserves, lean inventories, distressed suppliers and shippers – should be restructured to build in greater transparency and resiliency.

The challenge will be building in these reserves without increasing costs.  Aggressive adoption of digital technologies – e.g., sensors located in suppliers’ inventories – are likely to be an important part of the solution. 

6. Recharge M&A

Times of disruption can also be times of opportunity. This will be especially true for firms less affected by this crisis and with strong cash reserves. 

Distressed assets will need buyers. Even in the midst of crisis, it is not too soon for CFOs to be planning a recovery strategy focused on the upside. 

This proactivity also applies to firms that emerge weakened by the crisis. Many companies may need to seek new partners, or to make divestments to raise cash. It is important that the firm’s fate is not dictated by outside forces. Instead, the CFO should step forth with a proactive strategy to navigate the recovery.

CFOs must embrace the opportunity to transform

Executives planning their recovery must push further than mere tinkering with issues thrown up by COVID-19. This is an opportunity to reframe, reimagine and reinvent that leaders should embrace with total commitment – and the key enabler will be the CFO. 

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Summary

With a prolonged recovery ahead, CFOs must balance multiple challenges – shoring up immediate liquidity challenges, navigating ongoing volatility and proactively planning to drive new growth on the upside. Financial leaders that take the opportunity to transform their organization’s financial fundamentals can better manage these issues while building greater resilience for a post-COVID-19 world. 

About this article

Authors
Don Charles

EY Global Corporate Finance Leader

Results-oriented business leader. Drives and establishes transformation in challenging conditions. Technical leader. Value creator. Musician.

Dave Helmer

EY Global Tax and Finance Operate Leader

Helping companies reimagine the tax and finance function.Speaker. Passionate runner. Husband and father of seven.

Tony Klimas

EY Global Performance Improvement Finance Leader

Focused on bringing the best we have to offer to CFOs and other finance leaders.

Ben Taylor

EY UK&I Financial Accounting Advisory Services Leader

Innovative thought leader on the future of finance and assurance. Techno-optimist with an eye on emerging ethical issues. Fan of design, custom motorbikes and eclectic music. Husband and father.

Related topics COVID-19