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There is arguably no better teacher than a crisis, and as Winston Churchill famously said, “never let a good crisis go to waste.”

With senior business leaders across virtually all industries facing many tough questions about their companies’ performance and future direction, cash flow is the one common denominator that tops the CFO’s list of immediate priorities.

Now more than ever, the CFO needs to step forward with a modern, flexible, and robust tool that can keep abreast with the ever-changing cash management needs of their entities.

Here we will explore various possible responses from the perspective of a digitally mature CFO who, despite being entirely unable to predict the myriad challenges they may come up against in the future, has built their finance team on digitally sound foundations.

Being digitally mature enables them to:

  • Be flexible – they can model new scenarios or material changes to existing scenarios with ease, providing excellent information critical to rapid decision support;
  • Be responsive – they can provide the above insight at speed, combining great systems and well-structured data to deliver better information in much shorter time frames; and
  • Be detailed – a strong understanding of the key drivers of performance built on a modern technology platform can enable planning at a staggering level of detail without compromising speed or flexibility.

What does a digitally mature CFO do when the cash stops flowing?

Provide a more frequent view of cash position.

When a business enters “crisis mode”, the critical first step is to increase the cadence of specific information flows, most likely to daily and sometimes intra-daily. The cash position is the first of these information flows to move to daily reporting, allowing the CFO to provide the executive with critical information regarding cash generation, allowing rapid and decisive intervention.

A world-class corporate performance management tool (“CPM” or “EPM”) can enable this vision by providing a dynamic mix of simple reporting, drill-through visibility, and valuable root cause analysis.

Model the impact of changes to forecast, or model entirely new scenarios not previously considered.

A well-built financial model can unlock significant potential from the finance office to provide advanced decision-making support – the value of which increases exponentially during a crisis. The executive team will undoubtedly brainstorm various operational responses to cut costs, create alternate service models, or create new revenue streams. They all then turn to the CFO to assess what impact these actions will yield to the company’s bottom line and cash position.

While Excel remains the default choice for calculating this financial impact, models built in this way are static, require significant manual intervention to update/refresh, and mostly live on the desktop of a senior member of the finance team. They are usually anything but flexible or robust.

The digitally mature CFO has moved past these static Excel scenario models and instead relies on an integrated performance management tool to provide a flexible, robust, and scalable solution. They can build an up-to-date financial plan using dynamic variables based on a “single source of truth” dataset. By changing assumptions and tweaking the variables, comparative scenarios are at their fingertips – allowing them to focus their efforts on the development of operational and tactical plans rather than report compilation. Such flexibility and nimbleness puts the CFO many steps ahead of a digitally naïve counterpart and creates significant value for the entity.

Ensure a focused effort – identifying the top areas of concern.

By leveraging a powerful and flexible performance management tool, the CFO can narrow down the areas of concern to an operating unit or cost centre. The drill-through capability and reliance on a single source of truth allow for rapid variance analysis between the new financial plan and the current steady-state or existing financial plan at the different levels of the organisation. With the analysis taking place at the appropriate level, the root cause is identified quicker and the efforts of the operational executives are focussed.

For example, a financial model that includes an operational plan to “reduce payroll costs by 15%” can quickly be drilled down to a department or cost centre level, providing clear reduction targets for both the People and Operational teams to execute.

Or maybe a new revenue stream proposed by the product team has a significant adverse variance on working capital levels, either due to the inventory or customer days modelled. This will immediately be visible using the right performance management tool and allow the product team to reconsider or change the plan.

Provide a detailed analysis of the impact that planned cost rationalisation would have on the Group cash position.

Once the financial model, various scenarios, and plan sensitivity have been played back and iterated on, the CFO will have immediate access to the impact on both cash and operating margins. With automated integration to key stakeholder models such as covenant agreements or shareholder loans, the CFO can stay many steps ahead of these tricky and sensitive negotiations and provide the CEO with the data and commentary to manage all stakeholders.

Provide an immediate view on the impact of exchange rate changes to cash flow, and comment on the necessity to contain exchange rate risk further.

One of the more difficult areas to model dynamically is the impact of changes in exchange rates on the overall cash position. And to make matters worse, currency volatility is typically higher during a crisis than would usually be expected, meaning the typical “let’s lock in a forecast rate for the quarter or year” becomes a dangerous and obsolete modelling technique.

The most rational response to heightened volatility is exploring all exchange rate scenarios, even scenarios that were previously considered absurd. This requirement is essential for more exposed regions such as emerging markets where rate volatility could be the differentiator between survival or failure.

In these circumstances, the digitally mature organisation can rely on a performance management tool to model the impact of the most complex exchange rate environments. A properly built model using a world-class tool will allow the CFO to dynamically consider any exchange rate eventuality and update this view daily to provide expert-level decision support to the CEO.

While we all aspire to be as digitally mature as the above picture portrays, the reality is that we are all at different phases of our journey.

The good news is that if you are a digitally aware finance professional and aspire to make this degree of commercial and strategic impact on your business, the journey to excellence is not that far off.

inlumi specialises in guiding CFO’s and finance teams through their digital transformation journey. We value and nurture our niche position as a trusted transformation advisor to many top-level CFO’s. We are so confident in our recommendations that we implement the solutions ourselves. That way, we provide an end-to-end solution – Giving you the peace of mind you need in a crisis!

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