Next two years will be the years of CFOs

A chartered accountant by training, Neeraj Jain has spent almost his entire career at global manufacturing companies in various roles. Most recently till January 2020, he was CFO at J&J Medical.

Having gone through multiple business cycles in his career, Jain has a few words of sagacity for finance heads as they move to negotiate the turbulent post-COVID-19 world.

Edited excerpts of a two-part interview series:

Q: CFOs are at the centre of the corporate machinery that will deliver global economic revival. What will CFOs need to do?

A: The next two years are going to be the years of the CFO. While the CFO needs to ensure that the company sustains this crisis by focusing on strengthening cash reserves, it is important that the CFO does not get into a cost-optimisation mode alone, that being a comfort zone.

The CFO needs to continue to drive the organisational focus on growth by evaluating different business scenarios, alternate business models, lead digital/e-commerce, look for long term contracts that can come at a bargain and above all, look for some exciting acquisition opportunities or alliances. The companies which are not able to sustain this crisis will provide an opportunity to those who can navigate these times well and have access to liquidity. Maintaining strong and positive communication throughout the organisation is important.

Q: What are good cost-containment measures in the COVID-19 crisis?

A: The cost cutting has to be a well thought-out exercise as the focus of the leadership in a company needs to remain on growth even in the turbulent times. Having said that, following areas will provide an opportunity to rationalise costs :

- Cut out discretionary spends and all non-customer facing spends like travel, entertainment, company meetings and celebrations. One needs to look at costs from the customer’s lens – will the customer be willing to pay a value for the spend being committed. If the answer is no, there has to be a very compelling reason to spend that amount in the current situation

- Relook at all consulting and third-party advisory commitments. These can easily be deferred.

- Relook at the required office space as work from home culture is likely to reduce the need for an office where everyone has a dedicated space. A flex space with 60% of the employee number should be good enough

- Property rentals should be re-negotiated as there is a sentiment that suggests a 10-15 percent reduction possibility in the rentals

- Relook at the mode of advertising spend. Moving a part of such spends to social media will give cost benefits and a higher visibility

- Freeze hiring and even replacements during the current financial year

- Renegotiate all other fixed cost contracts

- Pay cuts absolutely should be the last resort and if need be, it should be restricted to top and middle managers. Ideally, this should be avoided and if forced to, it should be more in the nature of a deferral

Q: What kind of expenditures are worth not curtailing? Hindustan Unilever, Apple and some other companies are trying to help their suppliers and partners through the cash crunch. What is the way ahead?

A: Anything that can potentially impact the quality of the product or has the potential to affect company reputation must not be done. Going for cheaper inputs or bypassing processes to save cost can damage the business forever.

There is a great opportunity to help channel partners in supply chain financing and the ability to negotiate with a banker in such times can go a long way in cementing these relationships.

Banks and NBFCs as well as many start-ups are willing to give distributor finance or a vendor finance up to 150 days, provided these are backed by actual transactions. This can indirectly help the company to drive a cost bargain from the suppliers.

Read the first part of the interview here.