The Pivoting Role of the Post-Covid CFO

Navigating Covid 19 has created many challenges for CFOs. Initially, most had to shift focus away from profitability in order to triage liquidity and ensure ample cash flow to carry their businesses through the pandemic. Most also had to amend bank agreements to be sure that financial covenants were achievable in the face of falling sales and profits. At this point, however, most CFOs have liquidity and banking relationships under control.  As we head into a reopening economy, CFOs are now realizing, more than ever, that they need to pivot their focus to move their companies forward.

First, CFOs must now become restructuring specialists. Even though businesses are reopening, top line revenues most likely are not what they were prior to the shut-down. CFOs need to understand the ramp up curves in the top line and where those curves plateau in order to understand how and where to layer in cost. This may mean gradually recalling furloughed team members, realigning internal departments and functions to remove inefficiencies and redundancies, and holding marketing costs to the bare minimum, while still clamping down on Capex and non-essential spending. It also means reviewing customer contracts, supplier contracts, and lease agreements, all of which now have an open door for renegotiation. Understanding where the leverage is and using that to the company’s advantage will be important for many CFOs.

Second, CFO’s must have a heightened focus on financial forecasting for their businesses. These forecasts must be based on more complex models, sometimes more than one model showing multiple financial scenarios. These models should be granular and detailed, building sales from the lowest level. That level is determined by the specific business and could be the store level, the product level or customer level.   The build-up should be based on recent trends, possibly as recent as the past few weeks or past month and should be adjusted by geographical trends or trade areas trends. Gone are the days when several months of data often indicate where a business is headed. Due to continuing uncertainty, the post-Covid world is more about recent trends viewed at very granular levels.

Once the sales forecast is understood, the CFO must then weigh the cost scenarios, taking into consideration the needs of business operations, and any strategic activities that are happening in the business. 

The financial forecasts must also be full financial statement forecasts. CFOs will need to understand moves and changes in their balance sheets to understand debt availability and covenant compliance. And of course, the need to understand cash flow will not go away. A well forecasted statement of cash flow will validate a cash and liquidity forecast, which are essential to managing the business. 

Third, as CFOs enter the fall budgeting season, they must level set expectations around setting a financial budget. Because a post-Covid world is still riddled with high levels of uncertainty, CFOs should consider setting a budget based on current trends, but level set expectations that the budget should be locked only a quarter at a time. Every CFO must reserve the right to get smarter, and fellow company leaders, board members, and shareholders will need to understand that financial budgets will become dynamic and changing.

Last, a CFO must become an agent of change. We often hear the words “the new normal”, but it has yet to be shown what normal looks like. CFOs need to lead address the ever-changing financial standing of their companies, challenging fellow leaders to alter course or direction as the financial situation improves or deteriorates. A strong CFO will need to work with operational leaders to help drive an understanding of when the time is right to shift focus from purely operating to reinvesting in strategic initiatives. As the financial leader of the company, they will be heavily leaned upon to steer future direction for the company.

Regardless of the company, CFOs will need to navigate on-going uncertainty for their organizations. They are at the center of most decision making as companies emerge from the Covid shut-down. Pivoting focus and direction, while level setting expectations will position the CFO well for success. Driving change in the organization will be a must do to insure financial success. CFOs …. Are you ready?