The Role of The Fractional CFO in COVID-19 Recovery

We’re a long way from business as usual. Financial planning and forecast is difficult at the best of times, but the uncertainty surrounding the COVID-19 pandemic is enough to give people palpitations. 

This unprecedented event has led to the permanent shuttering of thousands of small businesses and a total US employment rate that peaked at over 10% (the August 2020 U.S. Bureau of Labor Statistics report shows that number is decreasing, sitting now at 8.4%). Financial planning for SMBs and enterprise organizations alike has been completely derailed by financial and social insecurity, which can be broken down into a few key factors:

  • How long it will take to develop an effective vaccine and distribute to the wider population
  • The impact of furloughs, layoffs and permanent closures of business segments
  • Working towards forgiveness for PPP Loans and SBA Disaster Loans
  • The potential for further lockdowns after reopening, as we’re seeing in Europe
  • The overall global impact COVID-19 has on the financial system
  • Erosion of public trust in political and economic leadership
  • The upcoming U.S. presidential election

In an uncertain world, the best way to stay one-step ahead of disaster is to plan for all possible scenarios. Given the massive disruption to the status quo, historical financial data and ranges simply won’t cut it when it comes to forecasting. Many small and large businesses alike are looking to Fractional CFO services to ensure that they are prepared to respond to any event on a dime. 

Fractional CFOs are used to coming into organizations and getting their hands dirty, and have lots of experience managing the finances of other similar organizations during this trying time. They’ll roll up their sleeves and look to address the following concerns:

  • Are your operating costs still valid?
  • Are you adequately prepared to respond to further COVID-19 disruptions?
  • Do your processes need to be updated to meet this new reality?
  • Has your competitive position changed?
  • Can you regain what was lost during the shutdown, or must it be rebuilt from scratch?

Even if your organization already has a full-time CFO or controller, a part-time consultant can provide unique perspectives on how to manage liquidity during this crisis and manage scenario-based planning. Ensuring your strategic financial recovery plan is tied to certain situations or financial triggers will allow you to proactively stay ahead of the curve. 

Manage your liquidity and debt

Trimming the fat during this time is paramount, particularly in the instance of highly-leveraged companies. A recent poll conducted by Oliver Wyman and The Associated For Finance Professionals (AFP) related to COVID-19 indicated that “78 percent of corporate treasury professionals indicated that enhancing liquidity and cash flow management is a top three priority for their company coming out of this crisis.”

An outsourced CFO can make sure that you are leveraging all of the tools for a sound COVID-19 financial strategy:

  • Check your business interruption insurance policy
  • Implement an emergency budget
  • Diversify your supply chain and lock in critical contracts and drive new bargains
  • Automate key business processes to streamline efficiency
  • Determine which of your assets can be disposed of, and if you can afford to, source strategic acquisitions
  • Work towards forgiveness on PPP, EIDL, or other low-interest government loans
  • Apply for local and state programs related to COVID-19 recovery and tax credits

Now that the PPP Loan program has ended, businesses need to look towards rapid forgiveness of those loans. A Fractional CFO will help you with the 20-100 hours required just to fill out the complex forgiveness forms and ensure your receipts are in order.

Internal budgets for business units should be tied to specific financial or event related thresholds so there is a rigid spending freeze in place until the outlook is more optimistic. An understanding should be established between finance and those units that the allocation of funds would be directly tied to shifts in key metrics such as customer acquisition and retention. 

Scenario-based forecasting model

Remember “Choose Your Own Adventure” novels? Your high-level scenario-based forecasting model would look similar, but tied to COVID-19 outcomes:

  • If a second wave of lockdowns affect our key geographies, turn to page 27
  • If a viable vaccine arrives in early 2021, turn to page 43
  • If an opportunity arises due to a competitor’s mismanagement of COVID, turn to page 6

Your business needs to be prepared for every eventuality, taking into consideration the projected length and depth of the economic impact that would result from each scenario. These scenarios and their triggers need to be identified and planned for collaboratively, with full buy-in from all business units  Like the spending triggers outlined above, these plans would be triggered as a result of specific KPIs that are agreed upon in advance to allow for a swift shift from one to another. 

Simultaneously, you should be looking to switch to dynamic forecasting. These forecasts are based on real-time data and performed at minimum every quarter, though some organizations may want to update even 2 or 3 times per quarter. You will need to be constantly evaluating your KPIs, and given the state of the market and the battle against COVID-19, continue to reassess and adjust your various contingency plans.

Adapt to the New Normal

As the effects of COVID-19 eventually level out, an CFO can help you adapt to whatever comes. The work at home paradigm will vastly change the way businesses are structured, online retail will be even more prevalent than ever, and the threat of a new pandemic in the not-to-far future should be a part of every contingency plan. 

CFOs are trained to have an eye to the market, the competitive landscape, and industry trends, and will help you understand and adapt to new technologies and processes to make smart short and long term business decisions as we all adapt to the new normal.

About the Guest Post Author

With 30+ M&As completed during his career and 15+ years of experience managing financial and operational functions of various fast growing companies, Frank Mastronuzzi is a Corporate CFO and Vice President of Business Development at Greenough Consulting Group. At GCG, he uses his financial expertise to mentor growing companies and guides venture funds, and professional services firms with their financial & accounting strategies.

Angelee Editor

Highly skilled professional with experience within the healthcare industry in network management, facility contracting and quality operations