The COVID-19 pandemic has had immediate and severe consequences in the world of business. Many companies are anticipating sales drops of at least 20 percent, while some believe it could tumble 51 percent or more.
Social distancing and stay-at-home orders have triggered a falling demand in many sectors. Rising unemployment also impacted income levels, which led to changes in spending. Finance executives had to respond quickly to these rapid shifts. Otherwise, their companies could end up in trouble fast.
If you are wondering exactly how CFOs are responding to COVID-19, here’s what you need to know.
Scaling Back Investments
One of the most logical steps most CFOs took involved scaling back or at least delaying investments. It’s a relatively simple move that dramatically enhances liquidity. Since having access to funds may become increasingly critical, especially since it isn’t known how long the effects of COVID-19 will last, it’s a step that many companies felt forced to make.
Often, a substantial portion of a company’s budget goes to handling employee wages, benefits, and other personnel-related costs. Many businesses had to turn to employee furloughs and layoffs as a means of lowering costs, particularly in industries that weren’t deemed critical and had to shut down entirely.
Precisely how many employees would ultimately be affected varied, based on shifts in demand, whether workloads could be managed from home, and similar factors. While many CFOs were concerned about the impact on employees, making it a difficult decision, the changes weren’t always avoidable. It’s an effective approach to cost-management, especially during economic downturns, so using it became a necessity.
Cash Flow Preservation
In some cases, CFOs embraced some aggressive moves for preserving cashflow. Executives slashed marketing budgets, canceled or paused projects, and reduced all other expenditures to the bare minimum. Discretionary spending essentially came to a complete halt.
At times, CFOs went further. Employee salaries were cut in response to the downturn. Some leaders even chose to stretch out their accounts payable as a means of maintaining cash flow.
CFOs that had access to credit lines weren’t shy about exploring it as an option. Some tapped existing lines early to support long-term liquidity. Others sought out credit options, applying for new lines in preparation for what was likely to come.
For those who were eligible, accessing government programs was also a priority. In some cases, the Paycheck Protection Program (PPP) was an option, and those who qualified quickly moved to tap that resource.
Ultimately, CFOs moved swiftly to preserve capital and find ways to improve cash flow, ensuring their company could remain solvent. Whether more drastic measures will be necessary isn’t entirely clear, largely because it isn’t known how long the COVID-19 pandemic will have such a dramatic impact on local, national, and international economies. However, many company leaders are poised to go farther, should the need arise.
If you’d like to learn more about how companies can navigate the pandemic, the team at The Squires Group can help. Contact us to speak with one of the members of our knowledgeable staff today and see how our expertise can benefit you.