Slightly more than a decade after the Great Recession, COVID-19 has brought back the dreaded “R” word to haunt executives in the global economy. The practice of social distancing to slow the contagion has abruptly and sharply curtailed economic activity around the world. Moreover, it is becoming clear that a worldwide recession of significant depth emerged in the first quarter of 2020 and may continue for an uncertain period.

Downturns and recessions are challenging, but some businesses are not only able to come out intact, they are also able to seize opportunities to outdistance their competition and position themselves for future growth. Still, the speed at which the COVID-19 crisis is unfolding may likely require CFOs to use new tools — virtualization and scenario-based forecasting, for example — in addition to the traditional levers they have used to act swiftly and reasonably.

In this period of rapid economic deceleration and uncertainty, there are six distinct imperatives can help CFOs protect their companies and workforces:

  1. Prepare for talent disruption. COVID-19 requires a focus on the health and well-being of talent, as well as that of their families, given the rapid changes they could face daily. For workforce safety, it’s important to virtualize back-office and other operations as quickly as possible. During this time, key staff members may become ill, unable to work for a period of time. In the event leaders and others are not available for urgent decisions and critical tasks, CFOs should consider how the chain of command and authority will shift among their staff. From protocols for access to critical files to re-tasking other staff, preparing for business continuity responses at an unprecedented scale is critical.
  1. Bolster liquidity. A foremost priority for CFOs is to ensure they have enough cash and liquidity for their company to operate — even more so for CFOs of highly leveraged companies. Central banks have authorized massive injections of capital to provide liquidity in the credit markets. Governments have announced various fiscal stimuli to support citizens and companies through the current crisis. The cost of financing has risen, and new stock issues through public markets have become unattractive given declines in global stock prices, market volatility, and challenges in forecasting earnings. During this time, CFOs should consider revisiting their financing and liquidity strategies, centralize cash release decisions with the CFO or treasurer, and leverage tax planning, which can be vital to reducing cash outlays and preserving budget. But in the near term, CFOs might consider taking advantage of government loans and grants, and central bank purchases of bonds to shore up their access to cash. Even taking into account all of this, the next two quarters for most organizations may be challenging, making it critical for CFOs to manage liquidity and cash in the near term.
  1. Communicate frequently with investors and regulators. In times of uncertainty, it is especially important to have clear and frequent communications with critical stakeholders. Uncertainty is the last thing that investors want, so providing them information — within regulatory guidelines — about what actions your company is taking to deal with the crisis and how they might impact performance is essential. In the wake of the COVID-19 pandemic, many companies have altered their earnings guidance. For some companies, unprecedented volatility may be an opportunity to shift away from quarterly earnings guidance and focus on long-term growth. Furthermore, regulators are another key stakeholder to communicate with at this time. Registrants that are concerned that COVID-19 could negatively affect their financial reporting quality or ability to meet the modified Securities and Exchange Commission filing deadlines are encouraged to proactively reach out to their auditors, legal counsel, or the SEC, as appropriate, to consider the availability of additional relief.
  1. Drive operational improvements. Beyond virtualization, both finance and business operations will have to adjust and step up to address changes in demand during the current crisis. CFOs must consider what needs to change in how the company operates and what opportunities can be seized during this time. Depending on the duration of the crisis, some companies may not be able to secure enough cash to ride it out long-term — possibly forcing them into bankruptcy, restructuring, or liquidation. The rapid deceleration of business will make forecasting near-term revenues and earnings challenging. Existing forecast models based on normal work and in-person interactions may no longer be valid. This is why it is essential for leaders to focus on shifting forecast models, reducing enterprise costs, and improving their pricing discipline as a few main factors to help them navigate this uncertain time.
  1. Manage risks. In addition to their financial duties, CFOs will have to keep a sharp eye on risk management and stewardship. As companies virtualize their workforce and some need to begin laying off staff, organizations could create more external access points to their systems where they can potentially become more vulnerable to cyber risks. At the same time, companies will face indirect risks in the global economy that can have severe impacts, depending on the duration and depth of the contagion. During economic downturns, it’s natural to focus on cost-cutting; however, by staying the course on initiatives that support long- term growth, CFOs can play a critical role in financing and positioning their companies for recovery.
  1. Plan for recovery post the COVID-19 crisis. Although it’s uncertain when the economy will start to recover from the impacts caused by COVID-19, it is not too soon to think about your organization’s future plans. As social distancing makes this crisis unique, CFOs should consider exploring different recovery models to determine which markets and segments could bounce back first. For example, economic downturns and recessions often result in layoffs, furloughs, and downsizing. Yet, companies will likely continue to face the long-term talent shortages they have experienced in recent years, especially during and after the recovery. A downturn presents an opportunity to hire critical talent from other organizations and universities that may be forced to downsize as they deleverage. Furthermore, this unique circumstance can provide leaders an opportunity to ensure their digital transformation projects are intact, along with ensuring their R&D strategies are in place to tackle any potential future threats that may be on the horizon.

Given the uncertainty, CFOs should develop strategies to navigate the COVID-19 crisis, using scenarios of different depth and duration. Planning should consider a range of scenarios from worst case to best case, taking into consideration talent, operations, suppliers, customers, and other key stakeholders, and the possibility that COVID-19 could persist for an extended period and cascade to create other risks.

CFOs in companies with a strong balance sheet and cash reserves are likely positioned to seize opportunities to innovate, outdistance their competitors, and grow more quickly in the ensuing recovery. Yet, the duration and depth of contagion will likely drive the recovery.

*Repurposed from Managing through COVID-19: Six imperatives for CFOs

Sandy Cockrell III is the global leader of the CFO Program at Deloitte LLP. Ajit Kambil is the global research director of the CFO Program.

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One response to “Managing Through COVID-19: Six Imperatives for CFOs”

  1. This is not going to be short and back-to-normal event but rather a change-inducing medium term crises with some kind of social distancing staying with us until a vaccine becomes available while the economy takes U or L-shaped recovery. It will bring change in customer needs and behaviour as well as new ways your suppliers, clients and partners are executing business with you; some of those trends will prevail as a “new normal”. This situation will force companies to look for new business models and work organisations of which some may even prove more efficient and profitable than current solutions.

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