Impact of COVID-19 on Accounting Operations Part 2: Positioning Towards the Future

8/9/2020 - By Saltmarsh, Cleaveland & Gund

The COVID-19 outbreak will have a direct and lasting impact on organizations of all sizes. While the full effect of the pandemic is yet to be seen, companies of all sizes are contending with an economic and health challenge unlike any the United States has seen in generations. But what does this mean for your finance function? What steps should you take to manage your accounting operations throughout this global crisis?

In this three-part series, we will explore the actions that CFOs, Controllers and VPs of Finance can take to set financial operations up for success – now and in the future.

Part 2: Positioning Towards the Future

In this edition, we will address how CFOs, VPs of Finance and Controllers are able to pivot staffing and operations, as well as maintain the organization’s financial wellbeing, in an increasingly remote business environment.

As cities and states begin to re-open, and businesses start to transition into a post- lockdown economy, there will be short- and medium-term challenges that will need to be addressed. If you were able to weather the early storm and ensure that the necessary accounting processes were operational in a virtual environment, you are already off to a strong start.

Taking Stock of the New Normal

By now, you and your teams have likely had several weeks of remote working experience under your belts. As you begin to plan a return to work, the first exercise to go through is to debrief on the past several weeks of remote working, with a goal of identifying three primary categories:

What Worked Well
These could include things like processing of accounting transactions and seamlessly accessing financials from home through the cloud.
What Could be Improved
Processes that perhaps did not work very well in a remote setting, but that you will need to improve moving forward. This could include capabilities like remote conferencing or video software that was critical for business continuity but would make interacting with colleagues more productive in the future.
What Should be Scrapped
Processes that you realize may no longer be as valuable or necessary as your organization shifts to an increasingly remote working environment.

If appropriate, consider debriefing with your team to better understand the challenges and successes associated with the remote working structure, in order to make better decisions around future work-from-home situations—which may come in waves through the fall and beyond as the virus ebbs and flows.

Once you have a sense of areas to sustain, enhance or to discard, the next step is to review your finance and accounting staff structure to determine if you have the correct capabilities to meet the demands of the new normal. For example, many CFOs are seeing an increased need for strategic financial planning and analysis skills in order to adequately budget, forecast and create financial models in an uncertain business environment.

Questions to ask yourself as you review your evolving staffing needs:

Does the finance and accounting function at my organization have the people, resources and capabilities needed to continue to operate efficiently and effectively in this new environment?
Do I have the right number of people on my team? Do I have the right combination of skills? Are new capabilities needed?
If a new hire is needed, whether on a contingent, part-time or full-time basis, how do I conduct the hiring process in an environment where face-to-face interaction is limited or not possible?
How will that new hire’s first week go? What does their onboarding process look like? How do I ensure cultural fit when the majority, if not all, of the team is still operating largely remotely?
As I identify what I need in order for my team to evolve, what is necessary for me to own in-house or what could I outsource? Outsourcing could mitigate day-to-day concerns about managing your headcount. Is there an opportunity to automate parts of the workflow to alleviate the burden on my existing workforce?

For CFOs or accounting teams who are thinking and determine essential resources and roles, effective planning boils down to four Ps:

Proactive: What are my struggles and how do I solve them?
Practical: What is essential, now and in the future?
Productive: How do I ensure my team is productive and expectations are set?
Positive: How do I continue to build and nurture company culture?

As you determine the right setup for your team, do not forget about equipping them with the tools they need in order to operate effectively from home. This includes establishing common collaboration, video and instant messaging tools, as well as cloud system application in order to gain secure access to your documents and data no matter where you are working.

This proactivity and flexibility will be increasingly important as future spikes in COVID-19 may force your organization to quickly shift back to remote working, even after lockdown orders are lifted and people make their way back into the office.

Maintaining Your Financial Health

As you plan the next few months, there are several important actions you can take to ensure your business is ready and equipped to ride the turbulence of the new business environment. Particularly in times like these, liquidity and cash flow management are the difference between enduring and going under.

While CFOs are typically front and center in strategic decision- making in the best of times, now is a time for finance and accounting teams to take a leadership role to steady and steer the ship. For most businesses, this is not a time for non- essential expenditures—now is a time for sustainability.

For the foreseeable future, cash (flow) is king. At the base level, start by ensuring that your transactional capabilities are designed for this remote setting. One way to do that is by asking yourself how your order-to-cash process functioned over the past several weeks and isolating any challenges you faced in getting cash through the door in a timely fashion.

The same goes for vendor invoicing and cash disbursement processes as well as ledger maintenance and monthly financial reporting. These bookkeeping and core accounting functions should be streamlined, organized and running efficiently to make your operations as seamless as possible in the coming months. While drivers of revenue and expenses will vary depending on what industry you are in—particularly in this economic environment—having a good handle on what these are and how you can adjust these levers is important for any Controller or CFO.

On the revenue side, build different scenarios and models on what might happen to your revenue projections depending on the myriad of factors at play. Services that will be the biggest cash generators as you enter a period of preservation and maintenance? This can be done by reviewing and assessing drivers of sales through the first half of this calendar year.

On the expense side, there are certain costs tied to revenue that will be necessary, but there are also costs that you should be reviewing for potential savings. With the 80/20 Rule in mind—the principle that that roughly 80% of the effects come from 20% of the cause—look at the largest expenses first, which are typically workforce, suppliers and facilities.

Spotlight: Cost Optimization with the 80/20 Rule

If everything is a priority, then nothing is a priority. The 80/20 rule—formally known as the Pareto Principle—is simple: 80% of outcomes result from 20% of efforts. For example:

80% of sales come from 20% of customers
80% of sales come from 20% of products/services/jobs
80% of customer complaints come from 20% of products/services

The principle illustrates that a “critical few” things generate most of the profit for an organization. Not all parts of a business are equally profitable.

Applying this methodology to your business in our current environment will prompt pivotal questions that impact all areas of the business:

Where do the pockets of high-profit business exist, and how do you maintain those pockets during the pandemic and/or recession?
How are key customers’ needs changing given the pandemic? How can you partner with your top customers to address them?
If you need to cut costs, how can you do so without impacting your best customers?
Can you retool the commercial organization to be better aligned with the key customers and markets?
How can you create a level of service that caters to those top 20% of customers to increase their satisfaction and accelerate growth during the recovery?
How can you set the right expectations for customers to avoid devoting too much time to those outside the top 20%?

We have already addressed staffing structure and what you can be looking for in terms of skillsets and expertise. In general, think about what your finance and accounting team will need to position itself in the future, and find that talent— whether you hire contingent labor, part-time, full-time or use an outsourced partner. From a cost perspective, there are additional approaches to reduce staffing expenses, such as offering sabbaticals, implementing pay reductions, offering flexible or part-time schedules, reducing certain benefits or 401(k) matching, reducing or cancelling bonuses, and others.

For your suppliers and vendors, work with them to negotiate a longer payment plan that works for all parties involved. If they are willing and able to do so, many vendors understand that providing a few weeks or months of flexibility can make a lot of difference.

Regarding facilities, the idea of office space itself and what the future of work looks like is being discussed widely, as businesses start to think about what a post-COVID office layout looks like. A reduction in office space as remote working is increasingly viable can create a meaningful cost reduction on rent, parking, or other fixed costs. In the meantime, if you are in long-term rental agreements for office space, remaining in a full-time remote mode for your team can save on specialty cleaning vendor costs, for example.

If you have applied for and received a loan under the CARES Act—for example, the Paycheck Protection Program—ensure that you are tracking qualified payroll costs and certain other expenses, and stay in close contact with your payroll provider or outside accounting firm to maintain compliance with loan forgiveness provisions.

In addition to these primary cost centers, there are several other short-term measures CFOs and Controllers can take to improve liquidity:

Halting nonessential purchases
Negotiating a debt service holiday or covenant relief
Applying for a low-interest government loan
Taking advantage of tax relief provisions

Managing cash flow and strengthening your balance sheet is especially important in times like these. Do everything you can to build up a cash buffer that takes into account uncertainties in the economy, and that positions you to be able to go back into perseverance mode if needed in the months that come. Build and formalize your contingency plans so that you are ready to execute on them in short order.

If you have applied for and received a loan under the CARES Act (for example, the Paycheck Protection Program) ensure that you are tracking qualified payroll costs and certain other expenses, and stay in close contact with your payroll provider or outside accounting firm to maintain compliance with loan forgiveness provisions. If you are using the Employee Retention Credit, learn how returning to work may affect your eligibility.

The Return to Work

We are now officially operating in a new world. The next 18 months will look very different from the previous 18. As the environment remains uncertain around social distancing and lockdown measures, business leaders should be prepared to deploy and pull back resources as needed. CFOs and other leaders should have plans in place to be prepared for multiple scenarios—whether a full office return, partial office return, or remaining fully remote—and need to be agile in case plans need to switch on short notice.

Read Part 1: Immediate Actions to Take

QUESTIONS?

If you have specific questions, please reach out to your engagement shareholder, manager or another member of our team. Visit our COVID-19 RESOURCE HUB for ongoing updates and information. Due to the ever-changing nature of this event, you should always consult the appropriate professionals.