Financial execs take wait and see approach amid coronavirus uncertainty
Financial executives are hesitant about their organization’s future working capital, demand for products and services, and talent retention, according to a new survey.
The economic downturn, tempered by record performance in the stock market, has fueled uncertainty about the economy. Despite the gains on Wall Street, many Main Street businesses are hurting because of the COVID-19 pandemic, and many companies around the country are still not seeing the demand they did pre-pandemic.
The quarterly survey, by Financial Executives International’s Financial Education & Research Foundation, found that 44 percent of respondents indicated working capital balances declined in the second quarter of this year compared with 33 percent in the first quarter. The 11 percent quarter-over-quarter increase demonstrates a profound erosion of corporate cash flow.
In response to declines in their companies’ working capital, financial executives indicated a preference for pausing different types of business activities, as opposed to canceling or cutting them.
“We’re closely monitoring our member sentiment toward financial management since the onset of the pandemic,” said FEI and FERF president and CEO Andrej Suskavcevic in a statement Monday. “What we’ve observed is the emergence of a ‘wait and see’ approach driven by lingering economic uncertainty. This is causing a logical shift to capital rationing as companies ramp select business activities while pausing others.”
Compounding financial executives’ ‘wait-and-see’ approach to long-term decision making is the greater difficulty with forecasting amid the uncertainties of the pandemic. Two-thirds (66 percent) of the survey respondents cited forecasting as an accounting area in which their teams struggled the most. Uncertainty around the effects of COVID-19 and the timing around a possible vaccine only increase the uncertainty.
“Companies are likely to continue to face challenges related to developing forecasts,” said Andy Elcik, national managing partner of accounting, reporting and advisory services at Deloitte & Touche LLP, in a statement. “Companies are often using different scenarios as part of their forecasting process and in the current environment the inputs and outputs of the various scenarios have a high degree of variability. To manage through this some companies are using rolling 12-month forecasts to help assess the evolving economic landscape.”
Some of the 170+ financial executives who were polled said their organizations are focusing on rationing cash and that cash-related financial metrics have become highly scrutinized key performance indicators. Yet despite the cash constraints, 62 percent of the respondents see a consistent appetite for mergers and acquisitions as the pandemic’s disruption has shifted equilibrium in favor of future deal making.
In the first quarter, weak demand for products and services was among the management issues ranked lowest in priority at 32 percent, compared to 51 percent of respondents who named it a top concern in the second quarter. Some financial execs see this as a significant management issue, while others see it as less so.
A significant shift in talent retention emerged among the survey respondents. In the first quarter of the year, 46 percent of the respondents said they were seeking to decrease their organization’s headcount, with only 16 percent planning to increase it. In the second quarter, 55.7 percent of respondents anticipated maintaining their headcount, with only 24.5 percent now saying workforce reductions are planned.
An average 50 percent of staff across all organizations surveyed plan to work remotely for the rest of the fiscal year. Organizations operating in the Northeast and West Coast aim to have a higher percentage of employees work from home, at 51.52 and 64.71 percent respectively.