CFOs Respond Rapidly to Pandemic

How much damage will the coronavirus outbreak and the accompanying economic downturn do to companies’ sales? In a special CFO Research survey, more than half (53%) of U.S. finance executives responding said they estimated a drop of between 1% and 20% in the first quarter. But about 29% of finance executives indicated the hit to sales would be larger — a falloff of between 21% and 50%. About 10% of respondents expected a drop of 51% or more.

The results of the late March and early April poll of CFO readers (CFO Research is an arm of CFO) were clear: U.S. companies face a rough couple of quarters ahead, at least. On the positive side, a little less than half (46%) said they expected a “V-shaped” recovery, or a return to normal economic activity in the third quarter of 2020.

Weak consumer demand from social distancing and state and city lockdowns punished some sectors early, but it didn’t take long for the effects to ripple across the economy. To survive the revenue and profit impacts, the 333 finance executives responding to the survey said they were taking immediate financial action.

Half (50%) of the finance executives indicated that their organization was “scaling back or delaying investments,” 47% working on improving their liquidity position, and nearly 20% shutting down or idling some operations.

But they also weren’t losing sight of the human cost of the global pandemic. Many finance executives said protecting employees, worries about staff becoming ill, and staff safety when dealing with the public were their top concerns.

Still, more than one-third (35%) indicated that they were laying off or furloughing workers. About 41% of respondents said they didn’t know how many employees ultimately would be affected. More than one-third (36%) said 15% or less of their employee base would be laid off. But about 17% of respondents said layoffs and furloughs would affect 20% or more of their workforce.

To keep existing employees paid and business alive, of course, the name of the game is to conserve cash. Cash flow was the second most-cited worry of executive management teams (see chart above). One finance executive’s response showed how aggressive companies were early on: his organization was cutting marketing spending in half; eliminating any project spending; and reducing all other expenses to “bare bones.”

Indeed, when asked what their company was doing to manage cash flow and cash balances for the next six months, 77% of finance executives said they were halting all discretionary spending. Half (50%) of respondents were stretching out their accounts payables, 16% were cutting employees’ salaries, and 13% suspending executive bonuses. Several indicated that there would be “no investment of any kind” in 2020.

To bolster balance sheets, companies were looking to outside sources. Fortunately, only 19% of the finance executives said they were concerned about their access to capital.

About one quarter (26%) said they had drawn on an existing line of credit or tapped another source of liquidity, and 24% were thinking about doing so. CFOs have clearly learned from the financial crisis of 2008: one CFO said their organization was drawing down all available credit facilities and long-term debt “in an orderly way to ensure maximum liquidity is really available.”

Fewer executives (23%), at least in late March and early April, were concerned about the government policy and legislative response to the massive economic shock. But many (51%) indicated that the United States should give priority action to low-interest business loans granted or guaranteed by the federal government — a step Congress took for small businesses with the Paycheck Protection program. Only 12% of respondents thought direct capital injections into large employers in the hardest-hit industries should be a first step.

While the U.S. government was pulling out all stops to keep capital flowing, the biggest question on many CFOs’ minds was the length of the economic downturn. Close to half were very hopeful, as noted above, predicting the “V”-shaped recovery.

About 42% projected a longer period of slower economic activity, extending into 2021 (a “U-shaped” recovery). And only 10% expected a sustained period of recession, with economic activity not picking up until 2022.

CFO Research surveyed the finance executives from March 26 to April 2. More than half (52%) were chief financial officers and 14% CEOs, presidents, or managing directors.

(Photo by Tayfun Coskun/Anadolu Agency via Getty Images)