In a strong economic environment, the CFO should be focusing on improving the overall value of the business by obtaining funds for positive ROI investments, keeping investors informed and happy, and helping the company grow. However, during bad economic times the CFO should change their focus. While cost savings and cash flow are always important, it becomes the primary topic of every investor call and management meeting. This focus calls for a CFO to change their management approach to handle these “wartime” challenges. The CFO’s primary objectives become lowering costs and staying cash-flow positive.
Here are five tactics for any CFO to quickly lower costs, increase cash flow, and better manage the organization’s profitability.
1. Adjust Vendor/Supplier Terms
A quick way to immediately improve cash flow and even reduce costs is to first work with vendors. Identifying essential and non-essential vendors will help you determine where to be flexible and where to cut activities. Almost immediately a wartime CFO will look to:
- Work with Procurement to delay purchases and lower essential vendor prices and rates
- Lengthen payment terms with non-essential vendors (30 to 90 days)
- Eliminate non-essential spend
- Cut independent contractor temporary worker hours
2. Stop Non-Revenue Producing Projects
High-cost capital projects that have soft benefits or only back office process improvements can be put on hold. Only revenue or current year cost saving projects should be pursued at this time. This can help to improve both cash flow and near-term cost reduction. Some example projects to pause include non-essential refurbishments, asset builds that have more than a six-month go live, and system/ERP upgrades.
3. Maintain Business Viability
The CFO organization must constantly asses the business viability of current and future products, service, and customer relationships. Can our products/services compete? Are costs under control? Is pricing covering our total cost? Are there operational restructuring opportunities (closing manufacturing, consolidating products/services)? These are important questions and the answers may change quickly.
4. Increase Sales and Revenue
The CFO may not have the same levers to pull on the sales and revenue side as the CEO or COO. However, it’s important for the CFO to provide guidance regarding financial performance of certain business lines and ask the tough questions: can the company can raise prices, expand markets, or increase sales? Leveraging strong management reports and KPIs can help shed light onto these top-line revenue growth opportunities.
5. Pursue Emergency Financing Instruments
Proper financing agreements are critical to stabilize the company and ensure consistent cash flow. CFOs can always be searching for improved financing options by assessing the balance sheet, reviewing covenants, and constantly communicating status to existing lenders. Sometimes the public financing markets will not be interested in financing a struggling company. A proactive CFO needs to scour the landscape for alternative financing (not banks) that can provide a lifeline in troubled times.
Every downturn has its victims, but companies often rise from tough times stronger and more profitable than ever before. Trenegy has a history of helping companies survive tough times and leading the way toward a more valuable future. For more information, email firstname.lastname@example.org.