Episode 1: What are the priorities of a corporate finance CFO during a crisis?

 

See full video transcript below:

James Daniel 

Hello, and welcome to Ask a CFO. We’re talking to James Vanreusel founder of Vanreusel Ventures, I would say a SWAT team of CFOs and analysts  helping companies to get on top of the numbers, money. James, is that is that a good description?

James Vanreusel 

Yeah, that’s pretty good. We like to say that we do a lot of bespoke work. We have a relatively small team, but we work as a team. We work as a team of CFO, financial analyst, operations manager to try and come in and fix the company financials, or really be a guardian towards an exit.

James Daniel 

So you come across a whole range of financial challenges during the course of your work. I guess what we’re going to do over this, this whole series over the coming weeks, we’re just going to put you under the spotlight. We’ve had a load of questions, and people can ask more questions. Are you were you good to go? Ready for the first one? Yep, I’m ready. Fantastic. Here it comes.

Question 1:  So it’s a topical one, actually, for today? What are the main priorities for a CFO during a crisis?

James Vanreusel 

When I work with a turnaround company, which usually signifies they’ve gone through some kind of a crisis. And usually it has its multiple crisis points, probably led by cash, coming from maybe like a product market fit or mismanagement or some kind of fraud.

The first thing really to look at is, number one, the root causes of everything. And Where’s it coming from? I think off to that, you really want to say okay, cash. Are we modeling this correctly? Are we forecasting it correctly? Do we know where we are right now?  So we can project out. So really looking at, you know, the backward looking financials, that they’re correct. And our current situation before we can actually project out. At the same time, of course, everything is a little bit of a rush.

You definitely want to be looking at expenses. One thing you can control is how much you spend, what you can’t control as much as how much income you have from sales. And typically, the sales might be the one getting impacted. You really want to right size the ship, and say, Okay, this is our cash. This is our conservative income number. So given our old expenses, this is when we’re going to run out. So what is the new expense we need to get? So it’s a little bit of a plug number, and then you need to get to that plug number?

James Daniel 

How much is a finger in the wind? Do you think?

James Vanreusel 

I would say, while you’re doing the work, and in depending on how good the state of the financials are in,  it may take two to three weeks to get there. I would say during those two to three weeks, I would put a concerted effort on really putting every expense on the chopping block, and seeing if it needs to go on.

Question 2:

Now two to three weeks could be a very tight time during a crisis. How do you put early warning systems in place so that you can work you can compress that time if you need to?

James Vanreusel 

It’s really having, I’d say primarily having a very solid cash liquidity projection spreadsheet in place. And some people like to have 13 week cash liquidity projection, some 16 weeks, I always have a rolling 12 month projection, because it does take time to turn the ship. So you will have so if you can see that, you know, seven months from now, for some reason, your caches dipping you  have five months to correct it.

But if you only have a month, it’s usually not long enough. That for me, that’s really the key. And then, you know, the way you get an accurate cash forecast is you need accurate sales and accurate expense forecasts. You start with the outcome. And you kind of work back through the inputs and make sure that they’re correct.

QUESTION 3:

And obviously, a crisis can be defined in many ways. So it can be something that’s going wrong within the company itself, or as we haven’t having sort of, you know, recently now with the COVID pandemic, it could be something that’s happening right across the market. So how does that change if the whole market is in meltdown?

James Vanreusel 

It’s more of a market issue, I think you need to figure out, first of all, whether your company is recession proof. And that has to do with who your customers are. And sometimes you won’t even know till you’ve gone through it at least once. But but I think understanding the risk that’s out there. And, you always want to have different scenario analyses and a very conservative worst case scenario. And then really always have risk mitigating strategies in place. If there’s a big market meltdown, that’s going to hit, there’s going to hit your customers is going to hit investors, it’s going to hit donors. If you if you’re a nonprofit, you really want to be first of all, talking to all these people immediately and seeing what’s going to happen.

But I think also understanding that, you probably want to be a lot more conservative going forward. I think the thing that’s happened now with COVID-19 is, every few months, it’s been okay, how long is this going to take? How long is this going to take?  I think a lot of companies have done this already. Already, one point it was now it’s January 2021. And at the next point, I think a lot of companies are thinking, Okay, this is going to last till 2022. So all of a sudden, the plans get elongated. And people just become more conservative. And that’s when you really see things filter through the economy and you see, you know, kind of a more sustained downturn, I think,

QUESTION 4: 

At what point do investors just run out of patience with this?

James Vanreusel 

I don’t think invent Well, it depends if it’s new investments, or if it’s track trying to solidify up an existing investment, I think new investor investments, you know, there’s a price for everything. So I think investors are still investing. I think it’s, it’s, it takes longer, there’s smaller amounts because of risk management. But you know, they can they can get a lot of companies at lower valuations, which is attractive. So I think there’s  always a supply demand balance going on. For existing companies. I think it’s just continuously reevaluating the investments, but typically, new investments do dry up quite a bit because there’s more money that’s needed to go back into existing investments.

QUESTION 5:

 I’m a CEO, then what what’s the most single most important thing that I can do to keep my investors onside?

James Vanreusel 

Communicate with them transparently and frequently

James Daniel 

Fantastic.

James Vanreusel 

Yeah. You know, and the other thing and I saw a quote yesterday, “People prefer bad news over surprises.” Its better to come out and tell the bad news early, then surprise people later on with it.

James Daniel 

That’s a great quote to wind that up with. Thanks very much, James. We’ll be back with James again next time. And if you want to ask a question, just put it in the comments below or tweet hashtag, #aska CFO. We will put it to James and we’ll see you next time. Okay, thank you. Thanks, James.

Next weeks episode is on its way…look forward to sharing it with you.

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