CFO’s Perspective on Business Interruption as a Result of COVID-19
March 24, 2020
By Alan Wink and Travis Epp
Businesses of all sizes are certainly dealing with extraordinary circumstances brought on by the outbreak of COVID-19 throughout the world. This terrible virus has forced every management team to look at business continuity and take urgent actions to deal with potential reductions in consumer confidence; financial liquidity and capital resources; work force utilization; and supply chain issues both domestically and internationally.
EisnerAmper recently hosted a virtual meeting with about a dozen CFOs of middle market companies in the NJ region. The purpose of this call was to enable a discussion of topics of mutual interest and concern in a non-competitive setting. At this time, there was no more weighty issue to discuss than the business, financial, accounting, and organizational issues they are all addressing due to COVID-19.
With the business climate changing every day or even every few hours, we were certainly interested in hearing what the CFOs felt were the biggest challenges that they would be facing over the next 30 - 60 days. Everyone emphatically agreed that long-term success was certainly dependent on continuous short-term successes. One of the biggest challenges was dealing with the uncertainty in the world and the conflicting reports coming out of the media and even state and federal government. Another short-term concern was the economic impact brought about by COVID-19. The longer the stay-at-home policies are in effect, certainly the greater the negative economic impact. Companies are dealing with staffing levels and resulting cash flow issues. CFOs are trying to manage their monthly fixed costs, which include items such as office, warehouse, and equipment leases. (It is certainly time to have serious discussions with your landlords.) Companies manufacturing a product are facing production and supply chain issues brought about by mandated factory closures throughout the country.
As all the CFOs on our call had a chance to participate, there were several points that might even be considered best practices. Now is the time to start talking to your bank. Don’t wait until your liquidity is totally eroded. Banks want to work with you and hopefully help you through these tough financial times. Another best practice is to keep accurate records of losses caused by COVID-19. Most business have business interruption insurance -- but do you really know what is covered in your policy? Pandemics might be a very grey area in your coverage. The importance of cash flow management cannot be understated right now. “Cash is king” and it should certainly be managed with strict care. The 13-week cash flow model, used by many companies, should be adopted by all.
- Companies are very concerned about cash collections and the ability to continue to conduct their business. The question of how long they can stay afloat with little or no revenue is at the top of everyone’s list.
- Ease of access to credit markets is different for every company. Everyone should be talking to their banker about capital formation. Increasing credit facilities might not be available to everyone.
- Manufacturers and suppliers have additional issues dealing with changing production schedules due to social distancing and the need for factory-wide scrub downs between shifts.
- Many business are learning to communicate while working from home; however, it is a fairly high learning curve.
- It’s certainly more difficult to operate a successful business while most of your workforce is working remotely. As everyone is learning together, working remotely requires a high level of both employee and employer trust.