CFO

Survey: How Business Leaders Are Managing Through COVID-19

By Art Wittmann, Editor, Brainyard
April 20, 2020
Medical Face Mask

In short:

  • About 25% of executives from companies with less than $10 million in revenue are very confident of success in the coming six months compared with just 8% of those earning more than $10 million
  • Spending cuts are the norm for all departments, but technology is faring better than other line items
  • What most everyone agrees on: 2020 will be a down year, 2021 brings a recovery

Everything can change in the blink of an eye, but U.S. businesses are a resilient bunch overall. That’s evident from the results of our April 2020 Outlook Survey of 174 executives and managers from small ($10 million or less), midsize ($11 million to $50 million) and midcap ($51 million to $500 million) companies.

During the first week of April, Brainyard reached out to its community to determine how the coronavirus pandemic is affecting businesses, to learn what steps companies are taking to deal with the resulting challenges and to compare results with our Winter 2020 Outlook Survey.

Survey responses reflect the pain that most businesses are experiencing now, but we also had some surprises.

The first was our respondent demographics. In December, more than 50% were finance execs; in April, that cohort was down to 27%. In December, just 17% were CxOs; that number is up to 38% now. In both surveys, middle managers made up about one-third of respondents.

Our conclusion is that the finance department is heads down figuring out how to deal with short-term cash-flow issues while the rest of the executive team is in strategize-and-communicate mode. Given that the survey hit in the first week of the month, we further surmise that finance teams were working to close the books while under social distancing and quarantine restrictions, certainly a complicating factor.

Coronavirus Effect on 2020 Outlook

The other demographic change between our December and April surveys was a lower response rate from companies in the $10 million to $50 million range. In our December data, it appeared that many companies of this size were outgrowing their internal structures. They were commonly planning to spend more on everything from marketing to sales to operations and IT versus companies outside that revenue band. These growing pains appear to have the midsize segment more heads down than respondents from larger and smaller firms.

While many midsize companies are no doubt scrambling right now, respondents from smaller businesses disproportionately face an existential challenge, so the data presented here will largely compare the responses of companies with less than $10 million in annual revenue to those with more revenue, up to $500 million annually.

Ready, Set, Prepare

Overall, 85% of respondents said their businesses have been harmed by the coronavirus pandemic: 53% classify the harm as substantial, while 32% say it’s slight. Back in December, 80% of companies expected a positive or very positive year. Now, in aggregate, they expect a 9% drop in revenue versus 2019 and a net profit margin of -12%.

Our self-reported data on revenue and profit was so scattered that we don’t fully trust it. Still, it’s fair to say that expectations for 2020 are low right now.*

As of early April, most companies had done what they could in the short run. Almost universally, respondents have worked to educate staff on new safety practices, canceled business travel and offered remote work to at least some employees. All of these steps have been taken by more than 90% of companies with over $10 million in revenue and by 80% of companies with under $10 million. This makes sense — canceling travel and closing offices save money, and education is a bargain if it keeps employees healthy.

Least Common Actions Taken Regarding Employees

A few companies have actually had to bring on more workers (14%) or ask existing employees to work more hours (20%). Less common are layoffs, paid leave and cuts in hours worked. Generally, larger companies were more likely to make a range of moves to address cash-flow shortages — they simply have more levers to pull than smaller companies.

The condition of the workforce is a major concern for businesses of all sizes, but particularly for those with over $10 million in revenue. When asked about prospects for business going forward, one executive at a food and beverage manufacturer put it this way: “Good, provided we can maintain a healthy manufacturing workforce.”

Financial Assistance By Job Type

Less than one-quarter of executives think they can get through this crisis without some form of financial help. For most, that means federally backed loans (80%) and bank loans (43%), though about 20% are looking to their states, too. Given the sluggish and chaotic rollout of federal loans, accessing help at the state and local level is a smart move. For example, Arkansas is providing $16 million in grants and bridge loans, while Massachusetts has set aside $10 million for small businesses.

Middle managers were about twice as likely as other respondent roles to think their companies would try to get by without external funds. They were also more draconian in their envisioned spending cuts and felt more uncertain about the business decisions coming down from the C-suite.

They’re often right to be concerned: JPMorgan Chase says that the median small business has a bit less than a month's worth of cash on hand. Restaurants have closer to two weeks’ reserves; real estate firms are best off, with 47 days of cash on hand.

It’s clear from our responses that executive teams are doing their best to communicate with workers, but there may be more work to do with mid-tier management. Crafting messaging aimed at their concerns will likely increase confidence and understanding of how the business will proceed through the crisis.

Some of the crisis communications advice experts offer to nonprofits is applicable to businesses as well.

Limited Cash Reserves for most Small Businesses

Cuts on Horizon
Every company is re-evaluating its spending plans for the year. In December, we found that a majority planned to spend more on payroll — there was almost universal concern over upward wage pressure. In all categories we asked about, more companies planned to increase spending than decrease it. Marketing, sales and IT/technology were all slotted for more investment.

That’s changed dramatically, and quickly. Capital spending gets the biggest cuts, with nearly 60% planning large (46%) or small (13%) cuts.

IT spending stands out from the pack. Among respondents, 30% still plan to increase spending on technology, with 31% holding steady and 39% decreasing. In other categories, no more than one-quarter of companies say they’ll increase spending over 2019 levels.

From anecdotal data, we see a few contributing factors to sustained spending on IT.

First, shifting employees to work at home likely resulted in outlays for everything from laptops to security software. If companies were considering moving from on-premises IT to cloud-based systems, they certainly have more justification now than they did in December. And finally, some businesses have significantly benefited from their digital capabilities. Whether technology has enabled them to work better with suppliers, deliver virtual services or even just take an order for a burrito without the need to talk to a cashier, those with strong digital capabilities have been better positioned to continue business during the pandemic.

Spending Plans, December vs. April

There’s no universal agreement on how spending cuts should go. Finance executives are far less bullish on IT spending than their non-finance peers. Finance is also looking for deeper cuts in production and product/customer support than their line of business peers. The data indicates that finance execs are focused on preserving cash in the short run, while non-finance executives are looking further down the road with concern for how they’ll get the business up and running again, possibly in very different ways than before coronavirus.

Executives may come into agreement once they see loans and other funds flowing from government or private relief packages, but as of this writing, those funds have been slow to reach businesses. The result is that financial executives seem to be planning for the worst while their non-finance counterparts are more concerned with how to get back to normal.

The sentiment of line of business executives is demonstrated in this quote from a wholesale food distributor, when asked how long it will take, with the clock starting the first week of April, to get back to normal: “It depends on how long it lasts and how many retailers fail. We are also working on a total pivot to other distribution models but it is in its infancy — looking for investors.”

Returning to Normal

Contrast that with this CFO for a public utility’s thoughts: “2020 will be very challenging ... structuring now for 2021.”

There’s no agreement on when we’ll reach the “new normal,” however that looks.

The aggregated average from respondents puts the return to normal about nine months out from April, implying that our respondents expect 2020 to be a slow year for their businesses and the economy.

“Our consulting division will struggle as clients are significantly cutting back spending in order to preserve their own cash flow,” said a CEO of an IT services company. “Managed services will see stable growth. Overall, we expect short-term declines with a slow ramp back to a normally functioning economy.”

This sentiment was echoed by other B2B firms whose customers are often B2C businesses.

Economists too don’t agree on the outlook, and the Federal Reserve continues to take actions to ensure liquidity in the markets. On April 9, Chair Jerome Powell announced the Fed would back an additional $2.3 trillion in loans aimed at assisting households and employers of all sizes and bolstering “the ability of state and local governments to deliver critical services during the coronavirus pandemic.”

That’s leaving leaders cautiously optimistic about the future of their business and the economy — with “cautious” being the key word.

Download the Report

Get the Brainyard’s complete Spring 2020 Outlook survey. Find out what 174 finance and non-finance business executives have to say about their revised plans.

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Art Wittmann is editor of Brainyard. He previously led content strategy across Informa USA tech brands, including Channel Partners, Channel Futures, Data Center Knowledge, Container World, Data Center World, IT Pro Today, IT Dev Connections, IoTi and IoT World Series Events, and was director of InformationWeek Reports and editor-in-chief of Network Computing. Got thoughts on this story? Drop him a line.

  

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