CFOs play a critical role in safeguarding the company's future. They must balance risk and reward, acting as guardians of the company's stability and reputation. This means they have a responsibility to use data to reduce risk.
In today's ever-changing landscape, new CFOs need to stay informed about potential sources of risk, like pandemics (e.g., COVID-19), major economic shifts (e.g., the 2008 crisis), conflicts and humanitarian issues (e.g., the Ukraine crisis), or major global incidents (e.g., the recent attack in Southern Israel).
What sets CFOs apart is their deep understanding of the business and their ability to turn that understanding into financial strategies. This expertise is vital for assessing a crisis's impact on the business as part of risk-reduction plans.
In the face of an unexpected crisis, here are some priorities for CFOs to consider (see Exhibit 1):
1-People First!
People always come first. Safeguarding the safety and well-being of the team is a top priority. They're the ones with the skills and determination to navigate the crisis and lead to recovery.
CFOs should collaborate with HR, show empathy to those facing challenges, and allocate resources to support them. Embrace corporate social responsibility by contributing to humanitarian causes and aiding affected communities in our response.
These steps are crucial in keeping our people-centric crisis management plan on track.
2-Development of Scenarios
The CFO must establish a responsive "emergency room," virtual or physical, to tackle three critical timeframes:
- Immediate actions
- Near-term recovery
- The path to the “next normal”
Rolling forecasts, powered by macroeconomic and company-specific data, should pinpoint significant EBITDA and cash liquidity risks. The Financial Planning and Analysis (FP&A) group plays a pivotal role in this process. Forecasts should consider second-order impacts like go-to-market disruptions and employees dislocation. The three scenarios – best, medium, and worst – should be pragmatic, with a reminder that optimism alone isn't a strategy. Preparing for the worst-case scenario is equally crucial, with ample safety measures in place.
Once these measures are in motion, the CFO should spearhead a framework for a lean executive team to make informed business decisions and monitor potential triggers for different scenarios. Real-time tracking of cash decisions and their impact on the company's resilience and ability to rebound when demand returns is imperative.
3-Plan for Business Stability
The CFO should adapt ongoing business continuity in response to the crisis and assess it based on several key parameters:
- Sales volumes
- Pricing (with potential adjustments)
- Changes in cost of goods and gross profit
- Overheads
These metrics will help the team gauge the crisis's impact and pinpoint the necessary strategies for business sustainability.
Furthermore, the CFO should stay vigilant regarding external factors affecting the business, which can have a substantial influence on recovery and even lead to "quick wins." Examples:
- Exploring insurance and financial hedging strategies to address specific risks like currency fluctuations and supply chain disruptions.
- Cultivating relationships with relevant government bodies to stay informed about regulatory shifts and access support as required.
4-Mechanism for Agile Decision-Making
To navigate through crisis phases, the CFO should steer senior leaders towards a comprehensive set of actions necessary for a successful crisis response. This involves employing our exclusive frameworks and tools to guide their time allocation in different crisis stages. Even when the entire organization is laser-focused on immediate actions, it's crucial to ensure that key strategic decisions aren't overlooked.
By offering top leadership strategic insights, global expertise, and a holistic perspective, the CFO can expedite decision-making and streamline crisis response programs. This approach aims to restore performance and rebuild trust with stakeholders.
5-Communication with Stakeholders
The CFO needs to keep things open and clear in communications with the team, stakeholders, the board, and investors. It's all about setting expectations and fostering trust. Share insights on how the crisis is impacting the company, the protective moves we're making, our financial liquidity, and any shifts in previous earnings commitments. This keeps everyone in the loop and shows that leadership is acting decisively based on our best assessment of the situation.
Within the dynamic startup ecosystem, the CFO's crisis management experience is invaluable. Prioritizing people's safety and well-being is the key to recovery. In the ever-evolving startup landscape, this approach becomes our guiding star, charting the course to a more resilient future.
