THE state of the global economy continues to dominate the business agenda. Although there is still scant visibility going forward, a few universal trends have emerged as businesses deal with the unprecedented challenges brought about by the worst global economic downturn since the Great Depression.

First, solvency has become a critical issue. Cash is reckoned to be the oxygen for businesses. Therefore, companies are being driven by a sharpened focus on cash and liquidity.

Second, innovation is no longer an option but a must. Businesses must innovate to stand out in diminishing markets where competition is getting tougher.

Beyond cutting costs, they must identify, create and strengthen drivers of value and profitability. Third, businesses must identify and manage their risks, since effective risk management strategies and their execution can make or break a company.

Fourth, companies need to communicate their strategies and performance better to reassure investors and other stakeholders against a backdrop of jittery investment and capital markets.

How are businesses dealing with these challenges? With the emphasis on preserving and improving cash and liquidity taking precedence, it appears that companies are relying more on their finance function and their chief financial officers (CFOs).

In other words, the economic crisis has put a greater focus on finance within companies and the finance function is now perceived internally as an invaluable guide. The scope of the finance function has also enlarged beyond crunching numbers in the backroom.

A recently completed research entitled The CFO’s New Environment by ACCA (the Association of Chartered Certified Accountants) and CFO Research Services revealed that CFOs and the finance function are increasingly involved in strategy formulation and risk management as a result of the economic downturn, indicating that finance is vital to corporate survival.

Out of more than 450 CFOs surveyed worldwide, 83% said the finance chief’s role is now more important than a year ago.

In light of this, how can businesses make full use of the finance function and their CFOs in improving long-term viability?

First, support from the top including boardroom backing is vital in making the finance function effective in its central role of ensuring solvency and liquidity, as well as in its expanded scope of strategic advisor and risk manager.

To offer the best strategic advice, CFOs must have the capability of forecasting different economic scenarios and preparing the company for the worst.

CFOs are also key advisors in validating rates of return and in making decisions to delay or prioritise investments as capital and funding constraints become tighter.

Second, businesses should recognise that CFOs are in a unique position to nurture innovation and creativity. In the new environment, CFOs are not entrusted just to drive down costs, but more importantly, to identify drivers of value and profitability.

To achieve this, companies should ensure that the finance function works more closely with other business units in strategic planning, and the CFO is more involved in the formulation of medium and long term corporate strategy.

Leading companies are including financial goals in strategic planning and measuring results to evaluate the overall success of the established strategies.

Third, the role of finance should be recognised as key in identifying and managing risks, whether financial, operational or market-related. Leading companies are designating risk management as a priority for CFOs, since risk management goes hand in hand with managing liquidity and solvency.

Many survey respondents stated that funding, cost-saving and liquidity are currently the top three concerns for their companies, made worse by restrictions on the availability of funding, cash lines and credit lines.

The finance function needs to find solutions, meaning that finance should be keeping a close watch on capital expenditure decisions, credit control and cash collection, and banking relationships, all of which affect liquidity and solvency.

Apart from financial risk, the finance function is also examining market risk and operational risk.

The leading companies surveyed noted that their finance units are adopting a more hands-on managerial role in business operations.

As part of overhead cost reduction initiatives, finance is now monitoring more closely staff numbers and workloads, remuneration and bonus schemes, and even supplier relationships which traditionally would not be within the finance’s purview.

Lastly, companies should be training their finance people to become persuasive communicators providing comfort.

In jittery investment and capital markets, companies need to provide a heightened level of assurance when communicating with investors, rating agencies and banks.

Respondents to the survey noted that stakeholders are asking more detailed questions these days, such as: “What’s your liquidity like?”, “What kind of bank lines do you have?”, “What’s your nearest refinancing?”

By empowering their finance function, companies stand a good chance of going beyond mere survival to perhaps becoming the best they can be.

The writer is president of ACCA Malaysia Advisory Committee and chief executive officer of Perbadanan Usahawan Nasional Bhd. To download the report “The CFO’s new environment”, visit
www.accaglobal.com