Coming back to life

There’s no better time for an accountant to demonstrate their value to the business than a serious crisis, and the Covid-19 pandemic is perhaps the biggest one of its kind that many in the profession will ever face. While other leaders in the business may be focusing on their core tasks, the finance team will have a pivotal role in restoring the business to a regular footing.

To do that, they’ll need to understand exactly what the company faces as it begins to reopen. “The overarching priority – after keeping staff  safe – is to (1) support the teams that engage with customers and suppliers, and (2) monitor cash levels,” says Rob Rattray, seasoned finance director and now a corporate finance adviser and director at R2 Finance. 

Sleeves rolled up

Having worked with a range of businesses during the worst of the crisis, Rattray says preparing for whatever comes next represents an unprecedented burden for accountants, but one that good planning and a can-do mindset will help.

“A finance professional should be helping the sales and marketing team by making the necessary budget available to undertake their newly planned initiative, and proactively reviewing key marketing events and planned activities to see what can be cut,” he says.

Rattray also suggests that as well as speaking to the bank and suppliers and looking at staff , travel and entertainment, property and marketing costs, finance leaders should take the time to develop new and alternate scenarios. These will stress test the business and establish what actions you can take to improve the situation. “You may need to adjust terms or prices to customers to retain their business.”

“Focus on your balance sheet and existing customers that owe you money and suppliers to whom you owe money,” he says, explaining that discussing terms with suppliers can help clarify the problems facing the business. “And ask if they can modify their terms (time to pay, reduced deposits etc). Call customers to ensure you are at the top of their list when it comes to being paid. Or discuss alternate resolutions on terms going forward.” 

A clear view

Luke Bebbington, formerly head of finance transformation at Man Group and now finance director at Cloudorizon, agrees that finance leaders need to get an immediate grip on the company’s cash position.

“Cash flow is king, so the priority has to be on reviewing all external spend in detail and reducing it where possible. So, potentially pause projects, reduce any non-committed spend, and negotiate on payment terms where possible. And, if bank debt is relevant, agreeing an interest holiday with the bank would also be a high priority.”

Alongside that, Bebbington says, a workable forecast is vital, but given the uncertainty, be prepared for forecasts to go through many iterations and scenarios.

“This is where finance needs to be extremely ‘agile’ and move fast as assumptions are often changing daily,” he says. That volatility is a continuing danger, says veteran finance director David Tilston, who points out that history shows that many companies that successfully survive a recession still become insolvent as they return to growth.

“The primary reason for this is that they need additional working capital to support the sales growth, and often they do not have the flexibility to support this as their cash reserves have been reduced as part of their survival efforts,” he says.

“My advice would then be to (a) ensure you prepare a 13-week rolling cash flow forecast, (b) look very carefully at the additional cash resources you need to fund the working capital increase (driven by increasing sales), and (c) ensure they find a way of funding this in advance, either with increased facilities from their bank or with revised short-term payment arrangements with their customers and suppliers.” 

The human factor

But of course it’s not just a matter of tackling the logistical and financial upheaval. There’s also the psychological fallout to deal with.

“The biggest challenge is the emotional impact on people and how that will knock on to the business in the next six months,” says Nic Redfern, another portfolio finance director whose clients in East Anglia have presented a whole range of demands, not least those brought on by the dislocation caused by lockdown.

“I think you really need to try to get people to feel ambitious for the future,” he says. “Being brave again is really hard for those running the business, and trying to find the right point to start taking risk again and grabbing opportunities is the trick – not doing it too soon, but soon enough. That’s the hard part.”

Redfern’s priority, therefore, has been to address the “hibernation mindset” that can set in after three months of dislocation and anxiety. “So you need talk to people and manage it properly, and that means you have to be more open,” he says. 

Good to talk

In practice, that means candidly addressing the thorny question of headcount reduction. Indeed, with furlough support reducing, Rob Rattray says it will be essential to conduct a robust and realistic review of staff pay and headcount going forward.

“The conclusion from your scenarios and stress testing may mean all is well, but it may also require you to implement a redundancy programme and reduce headcount to be able to keep trading,” says Redfern.

He suggests that as an alternative, it may be possible to retain more staff by implementing differential pay cuts throughout the business. Whatever you decide, the key is to keep staff informed and trust them to cope.

“In a recession, people tend not to talk about how bad things might be – but people have been through the scary time, so now you need to talk in a clear and transparent way. “This is not the time for senior finance people to be out of sight,” he warns.

Christian Doherty is a freelance journalist