CFO perspectives: Why a deals lens could help your finance function navigate a COVID-19 environment

The challenge of planning, forecasting and supporting your business with actionable insight at present is plain for us all to see. Issues include geographically dispersed and home-schooling workforces, disrupted supply chains and unpredictable customer demand. However, the phased reopening of the economy is going to create significant volatility, with the need for the Finance function to deliver insight faster and more frequently. This will require the use of wider datasets to provide the leading indicators required to support decision-making on areas for cost investment or rationalisation given changing consumer behaviour.

There are significant parallels to the role of a CFO in a deal process. The Finance function is often the common thread transitioning the pre-deal value hypothesis to post deal value realisation; turning a significant one-off due diligence effort into sustainable and replicable business reporting and processes, demonstrating where the value has been realised and proactively course correcting where it is off plan. However, whereas a traditional deals process allows for months of planning and execution, the need to pragmatically deliver in hours, days and weeks will be paramount.

The deals parallel doesn’t end there. The fragility of supply chains lends itself to increased opportunistic market acquisitions or even accelerated divestments. In these cases, there will be a need for accelerated due diligence to take control of new acquisitions or realise cash while ensuring value is maximised.

While the path ahead may feel daunting, the eight week lockdown milestone gives time to reflect on how much has been achieved. Much of this must have felt unrealistic just a few months ago. For example:

• The ability to close the month-end remotely, perhaps with fewer issues than normal despite those data or capability challenges that may have been on the ‘to do’ list for some time
• Revised forecasts and scenario planning established even against Budgets that may have just been agreed but became immediately outdated
• Refocused working capital management and cash optimisation initiatives (Refer to our article on ‘Protecting working capital is a lifeline for businesses’)
• Accessing government backed funding schemes and transitioning selected staff into furlough and the remainder into immediate home working.

So what do the next 100 days hold in store?

Without stating the obvious, it’s clear that the impact of COVID-19 will impact different industry sectors, SMEs, private, private equity backed and listed businesses slightly differently. In the most recent global PwC CFO Pulse survey in early May, 85% of CFOs expect a reduction in revenue and/or profits this year, with more than half (51%) expecting a decrease of up to 25%.

Sixty percent of finance leaders say they will defer or cancel planned investments, with facilities and general capex (83%), operations (53%) and workforce (49%) prioritised. With an eye perhaps towards what measures will be necessary for success in the post-crisis world, only 16% of CFOs are considering deferring or cancelling investments in digital transformation, with 48% accelerating automation and new ways of working to support the transition back to work and 37% planning to use automation to improve the speed and accuracy of decision-making to support supply chain strategies.

What are the key questions to consider?

While the day-to-day demands on you may feel overwhelming, the prospect of an easing in the lockdown both in the UK and internationally will add significant further complexity with the need to proactively consider your approach to the following key questions:

• Do you have the capability required in FP&A and business partnering to respond to and iteratively scenario model at speed; what different KPIs are needed to understand changing business dynamics, how robust is your underlying data and how replicable are your processes to support that decision-making?
• How can a pragmatic approach to automation in the short-term and ahead of longer-term technology enabled change, support you with the speed and accuracy of decision-making?
• Are you able to iteratively understand the working capital profile of a staggered and non-linear recovery?
• Do you understand the financial and operational stability of your supply chain and how would you respond to a failure?
• How many people can you afford to bring back from furlough, and how can you capitalise on the efficiency opportunities that changing customer demands and working practices can bring?
• What strengths and weaknesses has the current economic situation revealed in your company’s portfolio? Is there a permanent shift in consumer, supplier and workforce behaviour that you need to address, and how do you do this given limited resources? How should financial and operational goals be realigned as a consequence and how should you communicate this to key stakeholders?
• What organic and M&A options exist to address changing needs? What capital availability for acquisitions or divestment options exist to act as a funding bridge?
• For non-core assets that may be divested, have you undertaken high-level internal diligence to confirm financial performance, develop value creation scenarios for potential buyers and assess deal execution complexity to ensure you can deliver at speed? What new upsides or risks exist given COVID-19?

Ultimately, none of us have a crystal ball to successfully predict the challenges of the coming months. However, the ability to lift yourself out of the short-term tactical activities even temporarily, to strategically assess your response to these questions, will enable you to drive improved alignment amongst key stakeholders and establish the capability required to successfully react quickly and decisively. Then you just have the challenge of turning theory into practice...