PWC and Deloitte’s CFO Global Survey and the Post-pandemic CFO Cheat Sheet
Ashima Bhatt, RingCentral
Although it’s uncertain when the local UK economy will start to recover from the impacts caused by COVID-19, it’s not too soon to think about your business’s future plans. Amid all the chaos, the CFO plays a strong leadership role for the business in stabilising the business and positioning it to thrive when conditions inevitably do improve.
This blog summarises the findings in the PWC CFO Global Pulse Survey conducted in June 2020 and the Deloitte UK CFO Survey conducted in July 2020 whilst offering post pandemic C-level strategies to survive the new paradigm. The feedback from CFOs across the globe serves as an unofficial barometer of corporate sentiments and neatly summarises the new realm of CFO conundrums. To summarise:
- PWC found that as CFOs implement return-to-work strategies, they are most concerned about the effects of a global economic downturn (60%) and the possibility of a new wave of infection (58%).
- Having already made the necessary financial decisions to maintain operations in the short term, businesses are now pivoting towards driving turnover. At the same time, 80% of respondents are implementing cost containment.
- 33% of CFOs expect it will take more than six months to get back to business as usual (BAU), and Deloitte found that UK CFOs felt that demand would not go to BAU until summer 2021.
- Companies are embracing new ways of working, with 52% reporting that they plan to make remote work a permanent option for roles that allow, and 52% saying they plan to improve the remote working experience.
- CFOs are increasingly facing the difficult decision of eliminating services to reduce cash outflows, or negotiating deferrals to push cash payments into an uncertain future.
- Deloitte found that UK CFOs felt that COVID-19 is the greatest risk facing their businesses. Brexit is third on the risk list, after geopolitics.
The time to reflect is behind us, and the time to act is now. RingCentral UK has accumulated a summary of post-pandemic CFO strategies on how you can make sure your business comes out of the crisis leaner and stronger.
Cash is king—it’s time to bolster your liquidity
During a downturn, cash liquidity becomes essential to enterprise survival. In this environment, CFOs should consider the following steps to reducing or deferring cash spent, as well as exploring new ways to bring cash in and improve their credit rating:
- Reduce cash outflows by cutting capabilities or terminating services are contracts that are not essential to operating.
- Build scenarios—figure out how many weeks of liquidity your business has under various stressed business scenarios.
- Be sharp on collections and payments—processes, policies, and business-wide engagements. Send invoices out immediately.
- Introduce a cash flow KPI on reporting and targeting.
- Use cash flow hurdle rates for new deals.
- Optimise order-to-cash and procure-to-pay processes.
- Re-evaluate your current suppliers—shift from a high upfront CapEx purchasing model to a pay-per-use-per-month (low and predictable) model wherever possible.
- Hardware: Sell or lease back hardware IT assets (you may have fully owned assets that could be a source of cash inflow).
- Undertake cloud expense management: ensure that cloud spend is managed effectively by:
- Optimising and reducing cloud usage where possible.
- Ensuring that pricing is optimal.
- Reduce telecom expenses: Undertake mobile phone device usage audits, cancel fixed telephone lines in office facilities—fully utilise VoIP systems instead.
- Adopt third party support for maintenance: You may be able to move maintenance from expensive suppliers (big brands) to a less costly third party.
- Ask for discounts in exchange for early payments.
- Improve your inventory monitoring.
- Diversify and secure multiple lines of credit (just in case).
- Build a cash reserve of six months of costs.
According to the Deloitte survey, almost two-thirds of CFOs expect their capital expenditure to decrease over the next three years due to the COVID-19 pandemic or the UK leaving the EU. 25% attribute this reduction to both the pandemic and Brexit.
Manage the balance between frugality and driving innovation
Given the severity of reduced demand and the need to preserve cash, many companies have already begun enterprise cost-reduction initiatives. 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.
“79% of the CFOs are still planning to take aggressive cost containment measures” – Amity Millhiser of PWC in an interview with CFO Dive.
- What are the services and capabilities that IT will need to deliver during and after the downturn?
- New activities not directly supporting improving sales, customer experience, and product innovation should be reduced.
- Use third-party managed services and outsource maintenance to reduce costs and improve flexibility.
- Multi-tenanted cloud-based operations should be adopted wherever possible to leverage economies of scale and process automation.
- Reduce office real estate and business travel costs to reflect the changes in the ways of working.
- Consider ditching hardware expenses when they are not necessary (e.g. use softphones on your laptops and mobiles vs having a desk phone).
- Use zero base budgeting and planning processes.
- Renegotiate long-term contracts.
- Create incentives for early payments and penalties for late payments (for your customers).
- Determine your USP or key differentiator—ensure there is still an investment strategy to grow that muscle.
- What 20% of customers are driving 80% of your sales? How can you re-balance your sales channel investment strategy to maximise utility of cash?
- Improve your marketing—improving marketing reduces your cost-per-lead, which boosts lifetime value of your customers and opens up untapped markets.
- Improve customer success—losing an existing customer is much more expensive than gaining new customers.
FROM THE PWC CFO SURVEY: Real estate budgets have already been cut 7% on average, with plans for an additional 8% reduction in 2020. Real estate was also the most targeted expense in 2021 with a 3.4% reduction versus original budget plans for next year, the survey found. “CFOs we’re talking to are still in real estate footprint assessment mode, and most of their leases aren’t up for negotiation for many months, quarters, or even years.”
Invest for returns and digitise your organisation
While a CFO’s role is to manage the firm’s investment and cash strategies, COVID-19 required every C-suite member’s focus to pivot to the health and well-being of their employees, workforce safety, and business continuity. This is why it’s important to invest in securely digitising your environment as well as manage the balance sheets.
- Structure investments so that cash returns are brought forward and costs are predictable down to each month.
- Introduce elasticity into the services/IT you procure so that investment can be reduced rapidly if needed.
- Don’t lock yourself into any long-term contracts right now.
- Build benefit tracking into every investment case.
- Provide IT with the critical resources needed to bolster business continuity planning.
- Support the virtualisation of your finance department.
- Rationalise and diversify procurement. Given the impact of COVID-19 on supply chains, this may be a time to diversify supplier sources and lock in critical forward contracts.
- Consider an eCommerce channel for your business.
- Reinvent your core: how can you build new revenue channels through leveraging technology? As CFOs reinvent their businesses, 32% of them look to tech-driven products and services.
FROM THE PWC CFO SURVEY: PwC’s findings show that both innovation and cost containment are vital for thriving post-pandemic. “CFOs are on the front line of this,” Amity Millhiser said. “They’re balancing what’s affordable with strategy. They’re asking whether ongoing projects are mission-critical or not.”
Institute a communications plan
The CFO must take a lead role in the financial and strategic communications of crisis management.
- Ensure you are promoting “implementing a cash culture” to your direct finance team and department.
- Establish incentives to reinforce “cash culture” so that all departments understand “why this matters now” and what their specific role is in helping to optimise cash.
- Have consistency in your communications plan. Studies have also shown that a regular cadence of communication from the finance function helps in better retaining and engaging employees.
- Define a critical audience for each priority. You can have many different audiences, including your direct reports, your entire finance organisation, the executive committee, and the whole company.
- Increase frequency of communications to board and investor relations to ease stock volatility.
- Embody transparency as much as possible—transparency breaks the knowledge silos.
No one knows the exact extent of the pandemic’s effects on our economy, but what is clear is there’s ground to make up. CFOs are key to ensuring their enterprises not only survive the current crisis but thrive in the next normal. Businesses will need to innovate—which means investment—while managing the counter-strategy of frugality to survive the short term.
The pandemic experience has influenced attitudes towards digital transformation and has necessitated the adoption of remote work. But business evolution doesn’t end there. In fact, now is the chance to actually move forward with a long-term perspective. Maintaining a digital mindset, actively listening to customers, and prioritising employees are key to CFO success in the post-pandemic economy.
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