What is the importance of Financial Management during Financial crises? What measures financial managers should take to overcome financial crises in organizations during Covid-19 Pandemic?
Answers
Explanation:
has created a worldwide humanitarian and economic crisis. The events we are living through are in many ways unprecedented, with large-scale quarantines, border closings, school closings, and physical distancing. Governments and communities have been jolted into action to “flatten the curve.”
Resolve and resilience: Addressing the immediate crisis
Resolve and resilience: Addressing the immediate crisisEconomically, the COVID-19 crisis is most immediately one of liquidity and resulting financial stress. As the coronavirus has spread, thousands of companies have had to close their doors temporarily. Their supply chains have been disrupted. Consumers can no longer make many discretionary purchases. The finance leader’s top priority, then, has to be optimizing cash reserves, as the magnitude and duration of the crisis remain unclear. Specifically, the CFO should focus on assessing the company’s liquidity, launching a centralized “cash war room,” developing different scenarios based on potential paths of the virus’s spread, and rolling out an internal and external communications plan.
Launch a cash war room
Launch a cash war roomMost CFOs are already moving quickly to quantify their companies’ cash on hand as well as any incremental capital they can access. Finance leaders will need to forecast cash collections associated with the latest sales projections. With many customers delaying payments, however, some companies may need to double down on collections to remain solvent. When working capital is no longer sufficient, CFOs should consider tapping lines of credit and other options while reviewing opportunities to raise capital, such as through divestitures or joint ventures. If necessary, they should also seek relief on debt covenants as early as possible to strengthen the balance sheet before doing so becomes a matter of survival. In such times of crisis, when a cash shortage is a distinct possibility and conditions are changing constantly, setting up a cash war room can help CFOs implement aggressive curbs on spending throughout the organization. Additionally, CFOs can use various tools or mechanisms—what some would call a “spend control tower”—to prioritize payments and impose clear reporting metrics that track liquidity in real time.