The secret life of a CFO during restructuring

8 July 2020: What really happens behind the scenes when a company enters administration and restructures? A senior CFO describes the good, bad and ugly of trying to turn around a failing company in a new fly-on-the-wall ICAEW webinar.

During the secret life of a CFO during restructuring and administration webinar the CFO, nicknamed ‘Vicky” to hide her identity, walks us through the practicalities of restructuring a retail firm. She also shares her first-hand experience of navigating one of the most arduous tasks an accountant will face in their career.

Priorities

Having joined the business just three months before it emerged there was a serious problem, Vicky had walked blindly into a crisis that was erupting around her. It soon emerged she would have to map out a recovery, and she explained the first steps she took and how that would set the tone for the attempted recovery.

“It’s very important to get on with your bank manager from day one - I had him on speed dial,” she said. 

The company was moved into the bank’s special measures team which meant enhanced scrutiny and an independent business review, which is where a Big Four restructuring team entered the picture.

“In my first meeting with the board I had to ask for cash earlier than they probably anticipated, so while that was not pleasant to deliver, it was necessary,” she continued.

The importance of scenario mapping

“Always be prepared to do scenario planning if things are looking grim going ahead,” Vicky said. “Don't be frightened to call it out.”

Understandably, a new CFO won’t want to be doom and gloom from day one, but it is important to be truthful, as questions may be asked further down the line as to why certain problems were not flagged earlier.

“Stick to your guns and be completely transparent about your thoughts,” she said. “I would deliver the best case, but also show them the worst case and what needs to be done to avoid it.”

Cashflow management

“You know your suppliers better than the restructuring team do, so do not assume because something worked elsewhere it will work for you,” she said.

It is crucial to question the restructuring team and not be led by them to accept every decision they want to make, especially regarding cashflow and paying suppliers.

“Being open and honest with our big suppliers about the issues we faced was the right approach,” Vicky said. “We told them we had problems, a timing gap on cash, we asked to set up a payment plan, and made sure to stick to it. Suppliers are receptive, it’s when you go silent, they get twitchy.”

The balancing act

“Managing the restructuring and keeping the business afloat at the same time is not easy,” Vicky says. “It’s a strange situation when you have a business that is deteriorating but you have to ditch initiatives that should turn it around.” 

If the company doesn’t have money to spend, you cannot plough ahead with initiatives that were planned before the potential insolvency arose. It may mean upsetting some staff members, but there are ways to mitigate the situation, she explains.

“We decided to close stores, but rather than send the administrator in to tell the team they have half an hour to get their bags, we agreed with the practitioner to have a member of our team go in and explain what was happening,” she says. “It was a horrible situation, and we didn’t take the decision lightly, but we did the best to make it easier for the team.”

Mental resilience

“As a finance person you are in charge of the purse strings and it's easy to think you have failed or not good at your job when things like this happen and doubts creep in,” she says. “Think of it this way; if you are in charge of the purse strings you are not in charge of sales, or the operating model. Fundamentally if the market is not there, there is only so much you can do. It’s not your fault.”

It is equally important that you consider the impact on your own life of the long hours and extra pressure, as making time for yourself will give you a better perspective on what needs to be achieved.

D-Day and beyond

“You can practice ahead of time, but there is so much stuff you don't tend to realise you need to do until the day administration arrives,” she said.

As the news about the company’s administration broke on the BBC, it became easy for staff and the general public to think the worst about the future of the firm, when it wasn’t the case. Vicky said that managing the message is one of the most important aspects, which will mean watching for where gossip can leak, but also keeping your staff as informed as possible without giving away too many secrets.

“Returning to work the Monday after it was a bit flat, as I thought about how to move forward,” she said. “But then you move into phase two, where there is not so much pressure. It’s so important to do what you can to look after your team and look after yourself.”

Vicky delves into these topics and much more in this candid ICAEW webinar: The secret life of a CFO during restructuring and administration.