CFO horror stories: three finance nightmares and how to deal with them

A cash flow crisis

Sleepless nights and feelings of isolation

Whether due to mismanagement, a sudden economic downturn or unforeseen disruptions (such as a global pandemic), the fallout of a cash flow crisis can be devastating. A failure to meet short-term obligations, payroll or debt repayments, can lead to layoffs, loss of investment or insolvency. The CFO might even face legal scrutiny or reputational damage.

During a liquidity crisis, finance teams often have to work around the clock to keep the business afloat. David Morton, the former finance director of a wind turbine installation firm, recounts how isolating the experience can be. “I remember being huddled together with my CEO and COO in the corner of our damp, dated office, talking about ideas for expanding our fledgling business,” he says. “They were dreaming about procuring premises, hiring staff and mostly about making their millions. Meanwhile, following another sleepless night, I’d be on my third strong coffee working out how we are going to pay the technicians’ wages this month.”

Cashflow was struggling due to unpaid invoices and missing timesheets. “Part of the solution,” Morton says, “was my trusty, yet unpopular finance team.” Through diligence and hard work, they helped uncover inflated insurance quotes after a couple of workers had damaged their work vans and found ways to cover the cost of stolen equipment.

The emotional toll these situations can have on finance teams is often overlooked and underappreciated, according to Morton. “Finance leaders will be familiar with calls from Forex (the Foreign Exchange Market), difficult CEOs and HMRC,” he says. “Those are the calls your team can’t take and you have to handle yourself. Over the years, I’ve learnt you’re the only one worrying about whether lack of cash will obstruct expansion plans and unnecessarily extravagant business expenses. So finding mitigating strategies and being clear about how they work is vital.”

Keep calm and carry on

When things do go wrong, keeping calm, taking stock of what resources are available and moving forward pragmatically is imperative. Regardless of what occurs, the priority should be to get all relevant stakeholders involved. Trying to ignore or hide a bad situation will only make things worse.

So says Stefan Wolvaardt, CFO at Simply Asset Finance, who dealt with his own cash flow woes during the Covid-19 pandemic when the firm saw a massive increase in forbearance requests from customers. This is an agreement between the lender and the borrower to delay a foreclosure.

“It’s not just how you act in a crisis, it’s how you prepare for it,” he says. “Confidence in a finance team, especially the quality and accuracy of reporting, takes a long time to build but can be lost very quickly.”

Luckily, Wolvaardt says he was able to secure a panel of reliable funders which allowed the company to provide that forbearance to their customers and continue to originate loans where few others could. “The situation demanded that we be entirely transparent with our funders. We showed them the forbearance that we had provided to our customers and, in turn, requested forbearance for ourselves too, so we could continue to serve them.”

In times of crisis, the importance of strong relationships extends to inside the business too. “As a senior manager working through a difficult period, you may need to beg, steal and borrow help from others when an emergency lands on your plate,” says Wolvaardt. “If you haven’t built up strong relationships within the management team, you’ll be less likely to be able to pull the strings to deal with a crisis when you most need to.”

The cyber warfare threat

The growing threat of cyberattacks is also keeping CFOs up at night. Earlier this year, a deepfake CFO scammed the British design firm Arup out of $25m (£19m) – a chilling reminder of the increasingly sophisticated attempts to defraud companies using digital clones, phishing scams and false videos.

Ransomware attacks, meanwhile, are becoming an inescapable reality, says Heyrick Bond Gunning, CEO at cybersecurity consultancy S-RM. “It is no longer a question of if it is going to happen, but when.”

Ransomware gangs stole more than $1bn (£770m) last year, according to US blockchain analysis firm Chainalysis, and these groups have been blamed for bankrupting companies.

The financial implications of a ransomware attack means finance leaders are on the frontlines. In these moments, they face “massive, massive pressure”, Bond Gunning says, particularly when deciding whether to negotiate with the hackers or pay the ransom. All while looking for ways to keep operational disruptions to a minimum.

For one finance executive, who did not want to be named, this involved working out how to pay 5,000 employees when payroll systems were hit. The manufacturing business was targeted five days before payroll, leaving the finance team scrambling to find a solution. Thankfully, the finance team had devised possible workarounds in case such an incident took place but the pressure solve the problem in time to pay employees was still highly stressful.

Another CFO, who wishes to remain anonymous, was working on post-acquisition integration when a ransomware attack happened. A press release publicising the deal, sent out days earlier, had alerted hackers as to exactly when their systems would be most vulnerable.

A third finance chief, who spoke on condition of anonymity, recalls being in the middle of an audit and was close to completing SEC filings as part of an IPO, when the company was hit. Again, the hackers had timed their attack perfectly. Missing their SEC filing could have proved disastrous for the company’s share price. Given what was at stake, the company felt they had little choice but to engage in negotiations and were able to reduce the cost of the ransom.

In reality, negotiations with cyber criminals are often necessary, observes Bond Gunning. He says: “It can be the quickest way to resume operations, especially if the ransom ends up costing less.”

But this is always a risk. Payment does not guarantee hackers will unlock systems or that they will not return to demand even more money. Meanwhile, smaller businesses with limited resources may be unable to afford the ransom. There are also ethical questions for executive teams to consider, such as how far they are willing to go in negotiations.

“Finance chiefs need to have a plan for when they are hacked and they need to rehearse it,” says Bond Gunning. “They can no longer leave it up to their cybersecurity team. They need to be proactive.”

He advises finance leaders familiarise themselves with their insurance coverage but keep it offline. “That’s the first piece of documentation hackers will target,” he adds. “Make sure you understand what your priorities are and have agreed this with the rest of the C-suite so you’re not having a debate about it in the heat of the battle.”

An accountancy blunder that snowballs

Finance is known for being scrupulous, almost to a fault. So you can imagine the humiliation of an accountancy gaffe and the horror that can unfold as a result.

Even minor mistakes can seriously compromise financial accuracy and integrity, especially if they spill into the monthly or quarterly close. They can shake investor confidence and lead to hefty fines from regulators.

One recent example is the typo that briefly increased Lyft’s share price by more than 60%, before a correction was made. In this case, all it took was a press release forecasting that profit margins on rides were projected to increase by 5%, instead of 0.5%. Lyft only acknowledged the mistake when an analyst asked CFO Erin Brewer about it 20 minutes into the quarterly earnings call. But the damage was done. One investor has since filed a class-action lawsuit.

“Mistakes happen, but earning releases should be reviewed internally and externally many times before being signed off. If it’s still missed it’s often because it’s been rushed,” says Mark Kerswell, group CFO at marketing agency Incubeta. “A surprise like this implies a lack of control.”

Several other companies, including Fitness World, electric vehicle manufacturer Rivian and Mister Car Wash, were forced to make corrections to their recent earnings reports, following mistakes.

Scarier still, six in 10 people working in the controllership function are making several errors per month, according to data by Gartner. The CFO of Mobico, the parent entity of National Express, resigned earlier this year after pushing back the release of its financial results. The CFO of container company Tupperware Brands also stepped down, following delays in reporting quarterly and annual results.

Some argue that a lack of accountancy talent and stricter regulations are putting more pressure on finance teams, resulting in more mistakes.

“The balance sheet and working capital balance has a habit of dropping surprises and bad news, so rigorous review and control is essential,” Kerswell says. “So is getting the right people in the right roles, with clarity on ownership and accountability. A ‘no surprise’ culture, whether good or bad, is important.”