CFOs were hungry for deeper insights even before COVID-19 sent a collective shudder through the world’s economies. In fact, “using data more effectively” was the No. 1 priority for finance respondents to our Brainyard Winter 2020 Survey, with “producing better reporting on KPIs” also landing in the Top 3.
Line-of-business executives in the poll were also keen on more-effective use of data but about 30% less likely than their finance counterparts to care about better KPI reporting.
Our hunch? The minute COVID-19 upended business as usual, the days of business leaders having no idea of their companies’ DSO or liquidity status were over. And the first place they turned was the finance department. We saw a hint of that in our April Brainyard survey, and discussions with CFOs confirm the trend.
“Life is very different for CFOs right now,” says Eric Danner, a partner in New York financial advisory firm CohnReznick’s restructuring and dispute resolution practice. “They’re managing for cash versus profitability and are very often taking center stage in managerial conversations.”
Over the past few months, some companies were business mostly as usual — about 10%, based on our April survey. But the pandemic pushed most into one of two camps: those scrambling to keep up with demand (consumer packaged goods, PPE makers, Zoom) and those wondering how to survive (restaurants, hotels, many retail stores).
Now that the economy is reopening, CFOs are settling into those more-prominent roles. While what that actually looks like depends on which side of the divide their companies landed, what’s true across the board, says Danner, is that COVID-19 has made KPIs cool.
“Everyone is worried,” he says. “And the entire management team is paying closer attention than usual to how the business is doing … everyone wants to know the numbers.”
As purveyors of insights ranging from current cash on hand to availability of working capital to account balances, CFOs are in the spotlight. In response, they’re tracking different data points than they did just three or four months ago. Let’s look at what two CFOs in healthcare and finance have as top items on their dashboards now, then hear from some experts.
“We’re paying close attention to our liquidity and ensuring that we have enough [cash] on hand to handle another month or two of slower business,” says Greg Feirn, CEO of LCMC Health, which runs five nonprofit hospitals in the Greater New Orleans area.
Of course, a company’s liquidity level before COVID-19 has a material impact on its ability to not only continue operations but to secure an SBA loan or other funding to stabilize cash flow. But that’s not all Feirn is tracking.
After spending several years as LCMC’s CFO and COO, Feirn was appointed CEO in 2014. Wearing his former CFO hat, Feirn says the goal is to not have to sell any of the assets in LCMC’s investment portfolio until the stock market recovers.
“We’re also monitoring the rapid changes coming out of Washington D.C. around healthcare relief from the various packages and what we might be expecting in terms of stimulus funds and Medicare advance payments,” Feirn says.
The Centers for Medicare & Medicaid Services recently allocated $34 billion to healthcare providers in the form of accelerated and advance payments. That’s important because, despite being on the front lines of pandemic response, postponements of elective procedures have put many providers in a cash squeeze. The CMS is expediting payments to Part A providers, including hospitals, and Part B suppliers, including doctors, non-physician practitioners and durable medical equipment suppliers. Most can receive three months of their Medicare reimbursements in advance, while some can receive up to six months.
After receiving its first COVID patient on March 10 — that count peaked at 400 but is down to about 200 — LCMC immediately shifted into crisis mode. Then, when the governor issued a stay-at-home order on March 22, the hospital stopped all elective, non-emergency procedures (it has since restarted).
“We lost much of our outpatient business across the system,” says Feirn, who expects LCMC’s overall revenues to be down by about 30% for the month of April.
From a pandemic KPI perspective, the organization’s finance teams began tracking all stimulus funds received, determining whether or not repayment is required and gathering data to predict future performance from a liquidity standpoint. To ensure finance teams had access to all pertinent data, LCMC mobilized a “data group” as part of its COVID response command center. The group was tasked with capturing patient information, tracking positive tests, monitoring the use of ventilators and generating financial reports in real-time.
“All of these points drive our profitability in some way,” says Feirn. Another KPI added to the dashboard is the number of elective procedures scheduled for future dates. This forward-looking metric will help the organization estimate total outpatient revenue for the third and fourth quarters.
Pre-COVID, Feirn says, more attention was paid to actual surgery volumes versus future appointments.
“We now want to see how our clinic and surgery schedules repopulate and get a feel for how things are coming back online two to five weeks out,” says Feirn. “That will help us better manage our employee base, and particularly in terms of folks who can’t be productive right now, but who need to start planning their return to work.”
Looking out three to five months, he says new data points will include instances of telemedicine and virtual care, both ways to continue the business of patient care even as continued social distancing impacts healthcare delivery.
“We ramped both of these up in order to manage clinic visits, and to some extent, reduce emergency room visits,” says Feirn. “Tracking volume in these areas will be a new priority going into the future.”
When Austin-based Amplify Credit Union shut down its office operations in mid-March, the 60,000-member institution was set to accommodate a remote workforce — many of its 200 employees already worked from home at least one day a week. Customer meetings went to appointment-only, and members increased use of the credit union’s mobile app, website, drive-through and ATMs for transactions.
Once in shutdown mode, CFO John Orton says his team had internal discussions about which proactive, leading indicators it should start watching. In late March, it put in place a new dashboard to track the top 12 to 15 pandemic-related indicators relevant to both its members’ needs and its own corporate requirements.
7 Top New KPIs for Finance
Real estate loans
PPP applicant numbers
How many PPP applicants received funding
Average loan size
Real estate loans rose to the top of that list because, while the institution’s real estate loan portfolio is now riskier due to layoffs, refinancing activity is rising due to low interest rates.
“We’ve seen almost an insatiable appetite from members that want to take out mortgages or refinance existing ones,” says Orton. “So we’ve been tracking real estate loan applications and requests more closely than ever.”
This, in turn, helps the institution balance its available resources with the needs of its members.
Amplify is also tracking cash and liquidity as it pertains to the SBA’s Payroll Protection Program (PPP), including applicant numbers, how many member applications receive funding and average loan size. Like the program itself, these data points didn’t exist pre-COVID, but they’re helping Amplify track what it sees as an even more important KPI: The number of local jobs that it’s been able to save for its members by dispersing loans.
“At last count, the number was at over 1,000 jobs,” says Orton.
Getting that sort of pertinent data isn’t always easy for Orton. With much of the PPP program being managed manually for now, and with loan updates from the commercial lending team coming just once daily, he created new reports for tracking loan volume through that channel.
“At the end of the week, we review the numbers and submit reports to management every Monday morning,” Orton says. On the same day, Amplify holds a 40-person, companywide afternoon management call to review the results.
“We take them through all the dashboard metrics that we're seeing, and we go over the numbers, the trends, the implications and recommendations for what we need to do,” says Orton. “It’s not the most efficient approach, but that’s how we’ve evolved, and that’s what works for us.”
Looking out three to six months and knowing that COVID’s longer-term impacts will likely include borrower delinquencies, Orton says the prevalence of loan losses — auto, business, real estate, personal — will surely be added to his dashboard. When it detects the potential for losses in advance, for instance, Amplify can offer options like forbearance, the ability to skip a payment or some other way to offset a temporary reduction in income while keeping the loan active.
To other CFOs struggling to balance out the financial aspects of their operations right now, Orton recommends allocating time and effort to lines of business that have stayed healthy despite COVID-related challenges. Where auto loans have slowed considerably, real estate in the Austin area is maintaining its foothold. In response, the credit union has redeployed labor to the latter, a shift that’s easier with nearly all employees working remotely.
“Through our trend analysis, we saw certain business areas surge and others fall back,” says Orton. “Where in the past it took time to re-allocate employees to the more active business lines, a lot of our employees are almost like Swiss army knives in terms of flexibility. And that's not only helping us serve our customers where the need is greatest, but it helps us save jobs as well.”
By using data to identify members that may become delinquent and proactively offering help, a financial institution may reduce its loan losses. As we discussed in our look at the move to direct-to-consumer, retail, personal care, healthcare and hospitality firms that were forced to close are at risk of customer loss. Maybe clients are now doing their own nails, or have found out they like cooking at home. Spending to lure back former customers is much less costly than acquiring new ones.
After being fully reopened for a few weeks, look at churn/growth rate.
Active Customers Pre-Close - Active Customers Post-Reopening = Churn or Growth
Then reach out to those customers you have not seen for a while, potentially with an inexpensive email outreach campaign.
Companies that are working with venture capital or private equity investors will likely have to produce new data points that weren’t on their CFOs’ radar screens three months ago, and do so faster, says Wayne Lorgus, a senior partner with B2B CFO, which places its partners as interim and part-time CFOs.
“Investors will be asking for more detailed and quicker information on cash flow,” says Lorgus, who has served as both a CFO and CEO for a number of companies. He reminds the CFOs he advises that many private equity deals found investors shelling out more for acquisitions, and using more borrowed funds — often ranging from one to three times the actual investment.
No wonder they’re skittish. While VCs are eyeing burn rates, the No. 1 thing a PE investor will likely want to know is cash on hand, so remain focused on generating as much cash as possible to pay employees, cover overhead, extend your runway and potentially put funds away for a rainy day. That means checking in with customers to collect payments and talking to vendors about term extensions.
“Get a realistic read on just how solvent your customers are, and when they’re going to pay you,” he says. Investors are going to ask for that data.
“Depending upon when the deal closed, one of the first things that they'll try to do with a company they invested in is to make sure that the debt gets paid down quickly,” Lorgus says. A company with a lot of outstanding debt in play can expect numerous discussions around forbearance and other options.
“I know one CFO who spends half his day talking to lenders right now and the other half trying to get them the information that they want so they can then talk again tomorrow,” he says.
To avoid these situations — or at least minimize the depth of the rabbit holes — Lorgus advises CFOs to analyze revenue generation by product line and then move aggressively to address areas that aren’t generating positive cash flow.
“The current situation is forcing some quick moves,” says Lorgus, “all in the name of improving cash flow and stabilizing the bottom line.”
While CFOs need to be focused on cash flow, that higher profile we mentioned means they must also be planning for the post-COVID business environment. Expect to be asked for more, and more detailed, data during meetings with funding sources, investors, boards of directors and business stakeholders who are also trying to navigate these uncharted waters.
Once the smoke begins to clear, use the lessons learned to set your sights on the next disruption and how you can be even better prepared.
“If you didn’t have a cash cushion coming into this, make that a priority when you come out the other side and start planning for the future,” Lorgus says. “As they work through this immediate crisis, I’d say most CFOs are going to remember something they probably heard a long time ago, which is that you don’t wait for the downpour to start before you begin building up your rainy-day fund.”
Other important data points that all CFOs should have on their dashboards right now are days payable outstanding (DPO) and accounts payable aging, both of which play into cash on hand. Knowing exactly when vendor invoices are normally paid, for example, will reveal trends over time and seasonal variations while also allowing CFOs to make good decisions in a challenging environment.
“Everyone wants cash right now,” says Daniel Saraste, senior VP of strategy and innovation at global source-to-pay provider Medius. “Tracking DPO in real-time helps ease some of the pressure on CFOs and VPs in finance that are being asked to provide almost-daily updates to the management team, the board and/or the stock market.”
Saraste also recommends the use of aging payables buckets to help protect cash flow. For instance, a financially “healthy” supplier might be able to tolerate extended payment terms. However, a smaller vendor may be operating closer to the edge. Going a step further, he says CFOs with cash reserves can use this time to negotiate additional cash discounts.
Key points to track for each supplier include how critical it is to your current operations, how quickly it needs to be paid, its cash flow position if available and its tolerance level for extended payment terms.
“You don't want to push your critical suppliers to the point where they can't deliver,” he says. By aligning this data with exactly how much of your current A/P is overdue by 0 to 10, 11 to 20 and 21-plus days, you can execute a cash preservation strategy that doesn’t add to your suppliers’ financial angst.
In an interesting twist, corporate leaders also want more information about the health and safety of their workforces: Are employees healthy? Who’s out sick? Is it COVID or another issue? What’s our absenteeism rate?
“For the first time, we’re seeing health and safety metrics being introduced into dashboards on a regular basis, and playing a prominent role in executive conversations,” says CohnReznick’s Danner. These statistics include numbers of workers absent, percentage of workforce absent, absences and percentages by location if a company has multiple physical sites, normal course absences versus COVID-19 absences and average absence period.
Companies are also watching their inventory levels more closely, with this metric being especially critical for CFOs who lacked visibility into warehouse, distribution center or stockroom inventory levels in the pre-COVID world.
“Companies are often stunned by the amount of money that they have tied up in the dark corners of their warehouses,” says Danner, who is advising organizations to pick up the pace on turning raw inventory into finished goods, converting those goods into sales and then collecting the receivables on those orders as quickly as possible.
With no immediate end in sight to the COVID crisis, CFOs will continue to play a prominent role in interfacing with their companies, customers, and investors, providing weekly updates and introducing new metrics as they help their companies navigate this uncertain environment.
Bridget McCrea is a Florida-based freelance writer who writes about business, technology, and finance. She’s the author of five books and a contributor to publications like Logistics Management, Supply Chain Management Review, tED Magazine and Florida Realtor.