Uncertainty continues to be the biggest concern for FP&A. Unemployment has been steadily falling, but analysts worry the recent surge in COVID-19 outbreaks has yet to be reflected in jobs numbers or economic activity. Bankruptcies are also getting more attention as restaurants and retailers feel the brunt of stay-at-home orders. However, every industry is being hit with Chapter 11 filings, with Hertz, Frontier Communications, 24 Hour Fitness, and Chesapeake Energy among the many recent announcements. Others, like Briggs & Stratton and Harley Davidson are at risk of being added to this list. On the bright side, many CFOs are finding revenue opportunities by being more flexible with customers and suppliers, and a silver lining to this “black swan” event could be better CFO preparedness for future business crises.
Here are a few expert opinions we’ve found helpful in the past week, and we hope you do, too.
What the Experts are Saying on FP&A
Forbes: Bankruptcy Is Not The End
Pandemic-induced bankruptcies are increasing, but it can be a valuable “financial tool” companies can use to survive the ongoing economic crisis. However, it’s important to keep customers informed and to leverage employees as reassuring resources to both customers and lenders. But the latter also requires a CFO who actively communicates with employees and leads by example. “Leadership requires remembering the military adage that generals eat what the troops are eating. Sacrifices need to start at the top.”
Slightly more than half of CFOs surveyed say they expect the Dow Jones Industrial Average to drop below 19,000 (it’s currently around 26,000) before reaching pre-pandemic levels of just under 30,000. Two-thirds also say they support another round of federal stimulus funds and 80% say they’re experiencing a decrease in consumer demand, with 53% calling it a “major” decrease. “The overall economic outlook from CFOs has worsened in recent months as they have gained a clearer picture of the damage their businesses will sustain as a result of the COVID-19 pandemic.”
Financial Management: Global CFO survey highlights strategies to rebuild revenue streams
A recent survey by PwC found the top three concerns of CFOs are the impacts of a global economic fallout, a new wave of COVID-19 infections, and financial impact on liquidity and capital resources. But CFOs are taking proactive measures to conserve and rebuild revenue streams, including flexible pricing strategies, moving sales online, targeting new segments, and shifting supply chain strategies. “Although slashing costs remains a priority to sustain a healthy cash flow, only 14% and 11% of CFOs say they will consider cancelling or deferring investments on research and development (R&D) and on digital transformation, respectively.”
Economic pessimism in early 2020 pushed many CFOs to increase their short-term investments to create a “liquidity buffer. Popular “safe and liquid investment vehicles” included bank deposits, money market funds, and Treasury securities. But the positive result was that, at least as of March, “many of the companies in the survey seemed well-positioned to ride out an economic downturn.”
While the pandemic is consuming the bulk of Finance mindshare, other ongoing business risks have not disappeared. Climate change is just one such concern that may bring supply chain and infrastructure disruptions. It’s important for FP&A to find the time to focus on the multitude of strategic risks the business faces. “The current COVID-19 pandemic has emphasized the importance of prioritizing resilience by exposing the fragility of global supply chains and dysfunctional systems across businesses and forcing them to change the way they plan and operate to factor in large-scale crises.”
Preparing for climate change might be a secondary concern these days, but over 75% of CFOs feel exposed to climate risk, and “80% feel executive management should be held accountable for the adverse financial impact.” But the response to the COVID-19 pandemic could be having positive unintended consequences, since many CFOs focused their efforts on strengthening supply chains. “Addressing climate risk gives businesses a competitive advantage. ‘The lessons business leaders have learned from COVID-19 can be a springboard for helping them prepare for the inevitable.’”
Stay Tuned for More Useful FP&A Content
We’ll be continuing this weekly update with links related to how FP&A and CFO’s are leading their organizations through the continuing recovery. If you have comments, questions, or suggestions, please engage with us on Twitter, LinkedIn, and Facebook.