Operational Challenges faced by CFOs
- Opinion
- August 29, 2022
– By Pradeep Agarwal
The CFO’s office has its hands full with the ramifications of the current crisis that the world is going through. It would be easy, under the circumstances, to lose sight of what our priorities should be at this time. Hence, I have compiled a list of priorities to navigate the unique crisis we are in.
Remote Working:
Health and safety of the employees, vendors and others has to be the topmost priority. Almost all working people are working remotely. This means that most finance leaders would have the additional responsibility of being members of crisis management and business continuity teams. Not just this, CFOs would also be required to attend extraordinary leadership, board and general meetings.
Health and safety of the employees, vendors and others has to be the topmost priority. Almost all working people are working remotely. This means that most finance leaders would have the additional responsibility of being members of crisis management and business continuity teams. Not just this, CFOs would also be required to attend extraordinary leadership, board and general meetings.
Cashflow:
Most businesses will be looking at maintaining cash so that they can sail through the next few bumpy months. This would mean that the CFO office will be busy identifying and stopping non-essential expenses. It would entail CFOs talking with vendors and suppliers to extend payment terms and the accounts receivable will of course be vigorously trying to collect cash as much as possible.
Another aspect of cashflow is managing inventory levels, as there will be deviation in demand and supply plans. Some of the businesses may end up with a huge pile of raw materials as there will be fewer orders. On the other hand, for some other sets of businesses, raw materials would fall short because of the spike in demand. Both these situations will demand swift and stern action. As a result, CFOs will need to work closely with their colleagues in supply chain management.
Forecasting and Planning:
There will be a sharp demand for some kind of forecasting about the impact of the crisis on sales and costs. As the current situation is still very fluid, forecasts may need to be changed rapidly. This would mean that there will be need for new budgets. All these activities would be immensely time consuming, if attempted without the help of the best practice tools and processes.
Banking and Treasury:
Support of banks is essential for many businesses. Banking covenants and other financial instruments will need renegotiation. Moreover, large currency flows and lower equity prices could cause problems e.g. where hedging was not adequate or lower valuations have triggered a margin call or a breach of a bank covenant.
Insurance and contracts:
Some of the far-sighted businesses may have the necessary insurance to cover a large health crisis. My guess is that most of the companies would not have any such measures in place. CFOs will need to sit together to go through the fine print of policies and other contracts (leases and supplier contracts) to assess the possible impact on cashflows.
Communication:
Timely, honest, well-considered communication with all the stakeholders including employees, customers, suppliers, and other stakeholders is essential. Listed companies have the extra responsibility of making disclosures related to the health crisis.
Control and Governance:
Additionally, CFOs will have extra responsibility to review risks to control the environment. Reduced staffing, remote working and technical issues will all increase risks around segregation of duties, delegation, and workflow approvals. A new company rule book would have to be created to establish tightened control over expenditure. Along with all this, there will be the major risk to cybersecurity also to be managed.
Then, just when they could think they were done for the day, finance teams would have to take care of their normal day jobs!
Pradeep Agarwal is Senior Director, ERP Cloud, Oracle India
Most businesses will be looking at maintaining cash so that they can sail through the next few bumpy months. This would mean that the CFO office will be busy identifying and stopping non-essential expenses. It would entail CFOs talking with vendors and suppliers to extend payment terms and the accounts receivable will of course be vigorously trying to collect cash as much as possible.
Another aspect of cashflow is managing inventory levels, as there will be deviation in demand and supply plans. Some of the businesses may end up with a huge pile of raw materials as there will be fewer orders. On the other hand, for some other sets of businesses, raw materials would fall short because of the spike in demand. Both these situations will demand swift and stern action. As a result, CFOs will need to work closely with their colleagues in supply chain management.
Forecasting and Planning:
There will be a sharp demand for some kind of forecasting about the impact of the crisis on sales and costs. As the current situation is still very fluid, forecasts may need to be changed rapidly. This would mean that there will be need for new budgets. All these activities would be immensely time consuming, if attempted without the help of the best practice tools and processes.
Banking and Treasury:
Support of banks is essential for many businesses. Banking covenants and other financial instruments will need renegotiation. Moreover, large currency flows and lower equity prices could cause problems e.g. where hedging was not adequate or lower valuations have triggered a margin call or a breach of a bank covenant.
Insurance and contracts:
Some of the far-sighted businesses may have the necessary insurance to cover a large health crisis. My guess is that most of the companies would not have any such measures in place. CFOs will need to sit together to go through the fine print of policies and other contracts (leases and supplier contracts) to assess the possible impact on cashflows.
Communication:
Timely, honest, well-considered communication with all the stakeholders including employees, customers, suppliers, and other stakeholders is essential. Listed companies have the extra responsibility of making disclosures related to the health crisis.
Control and Governance:
Additionally, CFOs will have extra responsibility to review risks to control the environment. Reduced staffing, remote working and technical issues will all increase risks around segregation of duties, delegation, and workflow approvals. A new company rule book would have to be created to establish tightened control over expenditure. Along with all this, there will be the major risk to cybersecurity also to be managed.
Then, just when they could think they were done for the day, finance teams would have to take care of their normal day jobs!
Pradeep Agarwal is Senior Director, ERP Cloud, Oracle India