Nicky Tozer, VP EMEA, NetSuite

Many businesses are feeling the strain in what has become an extraordinary year. Understandably so – revenues are being hit, managing employees is more challenging than ever and cashflow is under scrutiny.

As talk of the economy re-opening gathers pace, business leaders can take simple steps to ensure business continuity and resilience. This is where the finance function is crucial – helping deliver the foundation to meet short term needs while preparing for what comes next.

Here’s how finance teams can deliver the insights and control to help leaders rebuild.

Time to Reassess

To be effective right now, a highly effective finance function requires a business-wide view. In addition to maintaining a set of basic habits that make their organisations far more adaptable to the pace of change, finance leaders must add new tools and techniques to supplement the traditional accounting playbook.

Assessing cash flow should always be a priority but right now it’s a requirement. Access to capital is always critical and has shown to be one of the top reasons businesses fail. The finance function must determine liabilities and short-term cash requirements to account for any fall in demand or disruption to the supply chain. Finance teams must now take stock of the resources in reserve, outstanding receivables and pending liabilities, then make an estimate of how much cash it will need to maintain operations for fluctuating timeframes, ranging from weeks to months.

Another tool is data. The data gathered from factors such as late payments or bad debt-write offs from customers should be used to run tabletop forecasting exercises based on the most likely scenarios. This will allow them to calculate the impact on profit and loss statements and cash flow over the short, medium and long term to prepare for a return to business as normal where possible.

Importantly, the data can also reveal new insights into how to alter business models, redesign inefficient manual processes, or serve customers in a different way. For example, late payment trends may highlight a need to refine the way products are delivered. Large, single, one-off invoices could give way to subscription-based terms or monthly payments that deliver greater recurring revenue, where applicable.

The Role of Finance Teams

Finance teams must balance visibility with control. Planning and control are not mutually exclusive and finance teams can take a range of steps to build business resilience.

Finance teams need to be central to organisational alignment, dictating the KPIs that will be central to business continuity. That means focusing sales and marketing teams around metrics that are related to delivering best-performing products and services. Finance teams should encourage the rest of the business, even more so than usual, to update them on changing customer needs and challenges.

Adopting a shorter planning window is key in these times. Most businesses operate on a 12-month budget cycle and manage strategic plans with longer timeframes, but this time, the focus must shift from long-term to immediate priorities. Using a 30 to 45-day window will allow a business to plan for immediate actions, whether relating to maintaining liquidity or payroll.

Finance teams should look to check payment terms with suppliers and buyers spanning from insurers to landlords. Each has a vested interest in the long-term health of the economy and may be willing to help by deferring payments.

Finally, finance teams must take this time to review budgets and identify sources of cash, even if there is no immediate need for them yet. There are inevitably going to be many budget lines that can be reduced in a ‘new normal’ where most people are working from home, or future initiatives may not happen as planned. Taking stock of these and scaling them back can be a valuable source of additional cash. In fact, according to a recent Gartner CFO study, 58% of CFOs have cancelled conference spending at this time to free up budget for more pressing matters.

Furloughing staff is also being commonly used to free up cash but should be approached with careful consideration. While it may help in the short-term, losing experienced, productive team members might only make it more difficult to succeed when businesses emerge out of the other side of this, and vital skillsets that will help lead the change may be lost.

Finance as a foundation for resilience

Leaders must look to their finance teams to deliver the tools and insights that will pave the way for short-term continuity and long-term success. With the right information, the business as a whole is empowered to weather the storm, focus on what matters most, and return to normal operations when conditions allow.

In the process, the finance function can create value and elevate its role as a strategic business partner for the long term. Now more than ever, establishing a clear framework of visibility and control will streamline and protect cashflow in the short-term, keep customers happy and reveal new and innovative options business leaders have available to drive the business forward in the future.

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