There are several areas where finance plays a crucial role during (& after) a business disruption.

Depending on the circumstances of the organisation and impact of the disruption, not all actions will be necessary. Some business judgement will be required to identify which actions are most appropriate.

1. Cash flow and liquidity:

a. The foremost priority for CFOs is to ensure enough cash and liquidity to operate during a crisis, especially for highly leveraged organisations.

b. Finance should update any forecasts, including any likely (and worst-case) scenarios, highlighting any pinch points. Key assumptions should be noted and validated regularly.

c. Modelling cash flow will help CFOs identify how many weeks of liquidity the organisation has under stressed business scenarios. Business continuity or contingency plans may require cash outlays, and the impact of these should be included.

d. Finance should move to rolling forecasts to enable the business to continuously plan and reallocate resources based on the latest results.

e. Consider immediate cash savings that are available, noting the wider impact that any cost saving actions would have on stakeholders, suppliers, customers and the workforce.

f. Offers, discounts and vouchers can be leveraged to shore up demand and generate income, depending on the industry and disruption.

g. If the organisation is considering selling assets, there is a risk of distressed prices being obtained. This should be factored into any forecast or model.

2. Financial control:

a. Policies may need to be adjusted based on the severity or duration of the business disruption, as such finance will need buy in from key budgetary areas to minimise infighting between areas.

b. Also, any changes will need to be communicated or re-enforced such as employee expense claims or pre-authorisations for expenditure.

c. Increase the frequency and rigour of reconciliations to validate cash flow forecasts as well as review debtors for collectability, if necessary.

3. Risk management:

a. Any risk registers will need to be updated and reprioritised, additionally, the organisation’s risk appetite will need to be discussed and reconfirmed at a board level.

b. Review insurance policies to understand if the particular disruption is covered.

c. Depending on the type of disruption, organisations may need to improve their digital capabilities, including cybersecurity, remote working, additional tools or software network architecture.

d. From a supply chain perspective, depending on the type of disruption, a plan will need to be put in place to ensure uninterrupted supply of products.

e. Identify critical suppliers and put monitoring in place depending on the difficulty faced.

f. Work closely with suppliers, especially those critical to the business, who may be vulnerable to bankruptcy. Business continuity may hinge on arranging alternate sources of supply, prepaying critical vendors, or even ensuring sufficient credit for the supplier to continue operations.

4. Strategy, planning and budgeting:

a. Finance will need to review the planning and budgeting cycle and consider how budgets need to be reallocated to match the organisation’s changed priorities.

b. It may be that strategic initiatives or expansion plans need to be slowed or deferred if there is an immediate impact on cash flow. However, disruptions are often an opportunity for transformation, so the organisation should be alert to opportunities in the market.

c. Organisations may need to consider new sources of growth, or even identify supply chain exposure, or the best way to serve a more digitally engaged customer base.

5. Financial obligations:

a. Review bank covenants and notify the bank if any breeches are likely. Consider whether there might be potential breeches, material adverse changes and/or cross-default triggers that may compromise access to core funding.

b. Be proactive with financiers to seek waivers and get ahead of any potential issues.

c. Update any collateral valuations based on latest information.

6. Working capital and short-term financing options:

a. Each disruption will impact the business differently – so understanding what options are available is crucial.

b. Options such as short-term finance, government help schemes, debtors, creditors and even selling off inventory to generate cash should be considered.

c. For short-term finance, ensure that terms and available amounts are fully understood. Depending on the amounts considered, various documentation or plans will be required. The finance team may need to prepare asset valuations, accounts filings, bank statements as well as a plan with associated financials to support loan payments, for instance.

d. Explore what government support is available in your country such as grants, tax breaks, tax payment holidays or even employee welfare benefits. Before making any decisions, check eligibility and documentation required for government support.

e. Take advantage of full credit terms where necessary and contact suppliers where the organisation may have difficulty in paying. Negotiations supported by an action plan may be required.

f. Monitor and manager debtors and deal with any disputes in a timely manner to help mitigate the risk of payment defaults or delays.

g. With each option, the overall impact to the business should be considered e.g. by offering discounts to debtors for early payments will reduce revenue, same as discounting inventory. For instance, both tactics would impact cash flow in the short term, which may be the favourable outcome, but would have an impact on the longer-term outlook.

h. It may be that inventory should be increased to cope with further disruption, in which case working capital may be required. Finance should review inventory valuations for any impact on cash flow forecasting.

7. Long-term financing options:

a. From a longer-term perspective, finance should consider taking advantage of equity investments or even a reduced dividend pay-out.

b. Regardless, shareholders should be informed of circumstances as they change.

Each organisation is different, so the approach for each disruption will differ based on the severity or duration of the impact. Waiting for a full set of facts to emerge before determining what to do is common mistake that many businesses make during a crisis. Because a crisis involves many unknowns and surprises, facts may not become clear within the necessary decision-making time frame.

But leaders should not resort to using their intuition alone. Leaders can better cope with uncertainty by continually collecting information and mapping multiple scenarios as the crisis unfolds and observing how well their responses work. Clear communication between finance and all teams affected will be critical, to ensure that everyone is making decisions based on the latest information available.

“The recent business disruptions have proved our ability to plan. Instead of spending 90% of our time crunching the numbers and 10 % running around in a panic, deciding what to do. We could spend 90% of our time action planning and communicating.” Matthew Shoard, Financial Controller, Casella Family Brands

For further information, including tips on continuous planning, download our finance whitepaper.