In order to respond to immediate challenges in times of crisis, everyone in the company should start thinking like a CFO, says a recent analysis by Deloitte. And so we thought, let’s ask CFOs what they would do.
Lilia Stoyanov is a chief executive officer and angel investor at Transformify. A fintech and digital transformation expert, she is also a professor at Zigurat Business School, expert evaluator Horizon 2020 at the European Commission, author in various magazines including Entrepreneur.com. Among the years she has held various Chief Financial Officer Positions.
At the times of the last economic crisis (2007-2008), Stoyanov was CFO of Skrill, a company that was acquired by fintech giant Paysafe in 2013, during her mandate. As CFO of Skrill, she was responsible for directing financial and general management functions for one of the world’s leading payments and e-commerce providers, with 30+ million customers worldwide. In the past four years after the acquisition, Lilia Stoyanov has focused on the development of her new venture Transformify, an HR software and freelance platform that helps companies find the right remote talent while creating jobs in areas with low employment rate (by the way, also a hot topic right now – ed.n.).
In the first edition of Think Like a CFO we asked Lilia to share her know-how and give guidance for acting adequately in times of crisis:
Trending Topics: How does the coronavirus crisis affect your business?
Lilia Stoianov: Transformify is an all-remote company, we never had an office and the shift to work from home arrangement had no impact on our operations.
Most of our clients are as active as before although their preferences have shifted towards our Freelance Platform, Employer Branding and Lead Generation solutions versus the ATS, which was the product of choice prior to coronavirus outbreak.
What’s a CFOs main objective during crises such as the coronavirus one?
Each company has a different working capital management model. Some companies are more profitable, others have free cash in excess, some are likely to depend on external funding to survive. Depending on the case, CFOs need to optimize the costs that are not essential and discuss with the marketing team cost optimization strategies. Reviewing the ROI (return on investment) of the marketing campaigns across different marketing channels to retain only those channels that are delivering results is the next step.
Put simply, the main objective is to make sure that the ends meet, and the company will stay in business no matter the circumstances.
What are the first and immediate measures that need to be taken?
Forecasting the ‘’run rate’’ and the “burn rate’’ is a good starting point to understand the financial health of the organization and develop a cost-optimization strategy and funding strategy if needed.
The next step is to identify and put on hold all projects that require additional investment to be completed and are considered to be too risky to launch in times of uncertainty.
Which are the first costs that could be cut (in your particular case)?
Many CFOs focus too much on cost-cutting, while in my opinion, the focus shall be on revenue generation. My decision was to focus on the products that add the most value to our customers in the current situation, put on hold all non-essential features and product enhancements and increase (!) the marketing budget across our top-performing marketing channels.
What do you think of headcount scaledown (particularly in the tech sector) and freezing hiring efforts?
It’s understandable. Transformify is an HR Suite and we monitor the market. Those businesses badly hit by COVID-19 pandemic have no other choice than to downsize and lay off those employees whose time is not fully utilized or the projects they have been working on have been cut or the clients have been lost. It’s inevitable.
On the other hand, all these people need a source of income, being it only temporary. Else, lots of people who have little to no savings will not be able to pay rent and buy food soon.
Understanding the market dynamics, and being a member of the Digital Skills & Jobs Coalition of the EU Commission, Transformify launched an initiative encouraging businesses to create temporary remote jobs for those people who have been laid off amid COVID-19 outbreak.
Businesses struggle too and it is understandable that they can’t afford to create full-time jobs now. At the same time, contract jobs are beneficial for everyone involved. It is good that not all industry sectors have been negatively impacted and companies like Amazon, Domino’s Pizza, Shopify, etc. hire by the thousands worldwide. Amazon alone announced that they are planning to hire 100 000 people in the next months.
What do you think about cutting marketing costs?
Cutting marketing costs can be suicidal. It’s rather identifying which are the top-performing marketing channels and campaigns and allocate more budget to them while cutting the rest. No business can survive without sales.
As mentioned before, I’ve cut the development of all non-essential product features and all IT development costs associated with them to be able to increase our marketing costs across top-performing marketing channels.
How should an SME revise its investment plans?
Most SMEs have a small portfolio of products or services and shall ask themselves which are the best sellers and which products or services are rather draining their resources. Investments are justified only if (i) there is a client who has requested customization or a new feature and is ready to pay for it or (i) it’s impossible to sell the product or service as it is incomplete as it stands now and there’s no one ready to buy it.
What should CFOs be extremely careful with (e.g. invoicing, billing, etc.) during such situations?
DPO (days payable outstanding) and DSO (days sales outstanding) are something CFOs need to keep an eye on at all times. It is likely that DSO will increase as all businesses are trying to delay payments as much as possible, but CFOs need to know when this increase becomes critical to the company. There are supply chain financing solutions that can help if the situation becomes critical provided that the margins are big enough to afford it.
What’s the number one mistake related to cash-flow management that could be made in such a situation?
Assuming that customers will pay as fast as before and forecast all other variables based on that assumption. Also, some finance teams continue to monitor the financial performance of the company on a monthly basis instead of setting daily collection targets and related KPIs.
It’s time to revise the budgets before planned expenses are incurred and allocate more budget on sales and marketing while cutting other non-essential expenses.
What should SMEs do if they are not capable of covering personnel costs/ social security/ other fixed costs?
It depends. The question is ‘’What is the minimum headcount that’s needed to support the business?’’ as lots of expenses are directly correlated to the number of employees. Think of rent, software licenses, utilities, etc. If the company is not able to cover the bottom line, it can either (i) look for external funding or (ii) completely shut down for a period of time. Unfortunately, many SMEs in Europe and the US fall in the second category even though that government-backed loans and subsidies have been made available to them.
Selling the business to a competitor, business partner or a VC fund is also an option but it applies to a very limited number of businesses.
What do you think about owners withdrawing private loans to finance the business?
I am not in favor of this option even though in the UK there are government-backed private loans for business purposes and the interest rate is just 6%. If a business is not financially stable enough to receive a bank loan, putting at stake your personal assets as collateral and potentially negatively impacting your personal credit score is a ‘’no go’’. It will only make the situation worse going forward. It is justified at a very early stage, I like to call it PowerPoint stage, when all financial institutions prefer to offer personal loans for business purposes as it is still just an idea, there is no business yet.