The current crisis is long and systematic. The evolution is the pandemic is shrouded in incertitude and there are not yet any guaranteed solutions. All businesses are impacted, with the majority seeing a massive reduction in activity, others stopping activity entirely, and a rare few reorganizing and even increasing their activity. In this turbulent phase, finance directors and management controllers have an important role to play to put in place the right tools for handling the crisis and especially cash management, assist management in drawing up different possible scenarios, guide managers in their decision-making, and maintain the company’s financial equilibrium, all the while watching out for short-term and predatory decisions.
Here, I identify 10 key roles for management controllers during the shift to cash culture that companies must now take and in crisis management leadership.
Cash: the crux of the crisis
The decrease, and even elimination, of turnover threatens the company’s profitability. The real danger, however, lies in the disappearance of cash, which threatens the company’s very existence by financial asphyxiation. Companies will not only see their turnover plummet: clients may also default on payments. Meanwhile, most charges are continuing to come in during the crisis. It is therefore essential to focus on managing cash flow rather than P&L (profit and loss) accounts, which will require a major culture shift in many companies and controlling teams.
Management controllers should take on a leadership role in the crisis to put adapted tools into place, organize teams, and lead the culture change regarding how cash flow is viewed in the company.
1. Rethinking forecasting tools: Traditional budgetary tools are proving inoperable in the current conditions. Initial hypotheses are obsolete. In these conditions, it is useless to “revise” the budget: it is wiser to turn over a new leaf, with new hypotheses and new scenarios. The goal is not to establish detailed and reliable forecasts, but to set a new course that can be followed loosely rather than to the letter. It is thus essential to accept this, and have the management teams accept it, by strengthening communication. It is therefore necessary to work on forecasting cash flow rather than profit and loss forecast using simple tools, for example Excel, as complex cash flow forecasting tools are not suited to a crisis situation where parameters are constantly changing and forecasting needs to be done continuously.
2. Cash flow scenarios must be based on the operational structure, department by department, to be as close as possible to the realities of the business model and of the financing and ordering methods. This will also allow controllers to work more easily with the managers of different departments to identify ways to save expenses and manage payment delays from clients. We refer to “scenarios” rather than “forecasts” to help teams understand that the models are based on multiple hypotheses that could eventually be invalidated.
3. Tighter steering: It is essential to review how cash-flow is modeled, by taking into account changes in regulations and taxes: this should be done entity by entity and by type of collection (for example, if sale prices are determined in fine, by the volume of annual purchases, the discount may not apply before the end of 2020).
4. Looking for ways to save: The company may suspend some upcoming expenditures if they are not essential or no longer pertinent following the crisis, working with the managers of operational units to identify these: pushing back office renovations, or promotional offers that are now obsolete… but beware of going overboard on cost killing! Decisions must not impact the mid to long term outcomes, and controllers have an important role to play in identifying ways to save and evaluating their impact.
5. Make the accounting teams aware of the need for information for management and monitoring in crisis time:The necessary accounting information is no longer the same, nor are the deadlines for obtaining it. The quality of cash management and forecasts rely on proper updates of the suppliers and customers accounts balance. The need for information and the deadlines for providing the information should be clear and reviewed with the accounting teams, as they may not have the same limitations and visions of the company’s needs.
6. Instill a « cash culture » amongst the operational teams: The marketing, commercial, and production site directors have a strong grasp on their respective operating income statements and know how to act on them. However, they do not have insight as to the cash generated, as they are not necessarily involved with the payment and collection deadlines. With the crisis, it is important that they integrate those elements into their decision-making, and controllers are ideally situated to instill this “cash culture”, by specifying those elements and giving them the means to have the necessary information with the new crisis management tools.
Becoming a leader in crisis management
Controllers also have an important role to play in managing the crisis. The role of “business partner” must pivot to “crisis manager” and become actively involved in the company’s crisis management.
7. Responsible crisis management: Controllers are accustomed to being watchdogs, and they are well placed to alert managers about the consequences of their decisions as they have an overall vision of the company: long-term financial consequences, but also the company’s image, product quality, etc. In this especially tense period, controllers must also be guarantors of responsible management and warn leaders and managers about unethical or even illegal behaviors and decisions, such as: using partial unemployment to reduce the costs of one’s business unit or sacrificing suppliers, landlords, and subcontractors on the altar of cash-flow by not respecting payment deadlines, etc. Opting for such irresponsible choices could ruin the company’s image, undermine employee, client, and supplier confidence, and have consequences that may outlast the crisis.
8. Organizing one’s teams in project mode: Crisis mode calls for a reorganization of controlling teams. This means pivoting to “project mode” rather than the typical “organizational mode”, i.e. by simplifying relationships with internal stakeholders, particularly for different business units, like buying and supplier relationships, HR and the impact of shutdowns, etc. Control directors should also ensure the coordination and sharing of information within different groups by organizing shorter but more frequent meetings, avoiding overly long video calls, and establishing ad-hoc communication systems with chats or themed discussion groups.
9. Be a driving force in team performance evaluations: Performance evaluation systems and bonuses are under review in many companies. By virtue of expertise in performance evaluation, controllers can become a driving force in establishing a “COVID” evaluation system that takes into account the efforts of certain teams and the situation that the company is experiencing.
10. Assist in the evolution of the post-crisis business model: Some companies have already swiftly adapted a new model, by developing online sales, new ways of distribution, and new production methods, and controllers can and do assist with this pivot. That being said, there are also many companies that will modify their business model after the crisis, to secure their supplies, diversify their offerings, and refocus their targets. Controllers can help managers with developing economic scenarios of these changes, and can also take the opportunity to identify new ways of evaluating their impact by putting into place shared value indicators, and proposing social and environmental indicators, that are more and more commonly integrated into management and performance systems.
Management controllers usually want to be considered as both business partners and experts in performance management. These roles are more crucial than ever during this crisis. It is in management’s best interest to draw on their knowledge of how the company works, of information management systems, and of forecasting and scenario methods and tools to turn the tide of the crisis and establish an adapted performance management system, with relevant tools, and a new focus on cash, all the while continuing to act as a watchdog to prevent the company from turning to short-sighted or irresponsible choices.