CFO horror stories: three finance nightmares and how to deal with them

A cash flow crisis

Sleepless nights and feelings of isolation

Whether due to mismanagement, a sudden economic downturn or unforeseen disruptions (such as a global pandemic), the fallout of a cash flow crisis can be devastating. A failure to meet short-term obligations, payroll or debt repayments, can lead to layoffs, loss of investment or insolvency. The CFO might even face legal scrutiny or reputational damage.

During a liquidity crisis, finance teams often have to work around the clock to keep the business afloat. David Morton, the former finance director of a wind turbine installation firm, recounts how isolating the experience can be. “I remember being huddled together with my CEO and COO in the corner of our damp, dated office, talking about ideas for expanding our fledgling business,” he says. “They were dreaming about procuring premises, hiring staff and mostly about making their millions. Meanwhile, following another sleepless night, I’d be on my third strong coffee working out how we are going to pay the technicians’ wages this month.”

Cashflow was struggling due to unpaid invoices and missing timesheets. “Part of the solution,” Morton says, “was my trusty, yet unpopular finance team.” Through diligence and hard work, they helped uncover inflated insurance quotes after a couple of workers had damaged their work vans and found ways to cover the cost of stolen equipment.

The emotional toll these situations can have on finance teams is often overlooked and underappreciated, according to Morton. “Finance leaders will be familiar with calls from Forex (the Foreign Exchange Market), difficult CEOs and HMRC,” he says. “Those are the calls your team can’t take and you have to handle yourself. Over the years, I’ve learnt you’re the only one worrying about whether lack of cash will obstruct expansion plans and unnecessarily extravagant business expenses. So finding mitigating strategies and being clear about how they work is vital.”

Keep calm and carry on

When things do go wrong, keeping calm, taking stock of what resources are available and moving forward pragmatically is imperative. Regardless of what occurs, the priority should be to get all relevant stakeholders involved. Trying to ignore or hide a bad situation will only make things worse.

So says Stefan Wolvaardt, CFO at Simply Asset Finance, who dealt with his own cash flow woes during the Covid-19 pandemic when the firm saw a massive increase in forbearance requests from customers. This is an agreement between the lender and the borrower to delay a foreclosure.

“It’s not just how you act in a crisis, it’s how you prepare for it,” he says. “Confidence in a finance team, especially the quality and accuracy of reporting, takes a long time to build but can be lost very quickly.”

Luckily, Wolvaardt says he was able to secure a panel of reliable funders which allowed the company to provide that forbearance to their customers and continue to originate loans where few others could. “The situation demanded that we be entirely transparent with our funders. We showed them the forbearance that we had provided to our customers and, in turn, requested forbearance for ourselves too, so we could continue to serve them.”

In times of crisis, the importance of strong relationships extends to inside the business too. “As a senior manager working through a difficult period, you may need to beg, steal and borrow help from others when an emergency lands on your plate,” says Wolvaardt. “If you haven’t built up strong relationships within the management team, you’ll be less likely to be able to pull the strings to deal with a crisis when you most need to.”