Rick Telberg
Rick Telberg

Post-Meltdown: Top CFOs Gauge the Fallout

Top 11 tips from CPAs in business and industry. And, how safe is your job? Join the survey; get the answers.

October 2, 2008
by Rick Telberg/For the Finance Executive

CPA financial executives around the nation and in every industry are grappling daily — even hourly — with the fallout from the meltdown in the global financial markets.

What are they seeing? Hearing? Saying? What do they think will happen next? What should the government do? What can CPAs do?

These are some of the questions we took to leading CPAs in business and industry in the last few days. And, predictably, the CPAs were not spare in their answers.

They are reporting some new difficulties in obtaining credit, a freeze-up in decision-making and spending, employees worried about their 401(k)s, questions about the government response, and concerns about the new regulatory schemes to follow. At the moment, CPAs seem sure about few things. And they still have more questions than answers. But one thing on which they are certain and they agree: CPAs will play a leading role in the solution.


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Here's a sampling of their comments, edited for space and clarity:

HIGH TECH — Bob Laux, senior director of financial accounting and reporting, Microsoft Corp. in Redmond, Wash.:

We're going to see new regulations and a whole new regulatory environment. It would do no good to just resist the changes that are about to come, but it is an opportunity to shape what will happen so that we don't get costly regulations that don't really provide the transparency that is really needed. It's an opportunity for us to see some real robust risk disclosures. Too much of the disclosures we've had leading up to this moment haven't really been good disclosures. The disclosures have been boilerplate, all perfectly correct, of course, but not clear at all, sometimes minimal. We, as CPAs in business and industry, must strive for transparency in financial reporting and not answer questions with legalese. We need to be as clear with the public as we are in a management meeting or with our board of directors. It doesn't have to be radical and I'm not saying the new rules should put any company at a competitive disadvantage because of a disclosure. But as CPAs we need to be more than just technically competent. As CPAs we have taken on the obligation to look out for the public good. And CPAs in business and industry can be the prime drivers in this.

FINANCIAL STAFFING — Doug Nesbit, senior project consultant, SALO LLC, Minneapolis:

I am seeing a general paralysis in decision-making on such things as hiring and investment. This will mean less work-life balance and more pressure on current staffing models. I am very concerned about the meltdown and the ability for government to take swift action. I do not feel we should be concerned about a depression, but more about a sustained recession that poses longer-term pressure on our financial resources. Be proactive in banking discussions and work to cement business relationships.

LOGISTICS — Thomas Foard, EVP/CFO, Publishers Circulation Fulfillment Inc., Towson, Md.:

We have not experienced liquidity issues with respect to our credit lines and cash management — it seems that the "credit crunch" is limited to certain financial sectors, with the middle-market commercial lending sector appearing to remain liquid at this time. Customer and supplier transactions appear to be behaving in a business-as-usual manner — no sense of panic, but we are monitoring closely to be proactive if things deteriorate. Employees are concerned about their 401(k) accounts naturally, but, for the most part, are not overreacting in the short-term and they are keeping the long-term perspective in mind. Most people seem to be discussing the role of government, with the debate focusing on the "too big to fail" notion, and the question of where does that stop, as more companies are lining up to be included. When I purchased my coffee at the local donut shop, the owner commented to me, "Would the government bail me out if my business went down the tubes?" It was interesting that our recent quarterly review with our bank focused on the health of the bank as opposed to the health of our business — talk about turning the tables!

BROADCASTING AND MEDIA — Ralph Bender, CFO, Manship Media, Baton Rouge, La.:

Like everyone in this country, the events of the last couple weeks have been unsettling. Working for a somewhat leveraged family-owned business, we have some concerns about how this will impact lending arrangements, and as a trustee and administrator for our retirement plans, I am now in the role of social worker for many employees who are very worried about their nest egg. Of most concern is: Can we calm the country so that business is driven by business needs and so we do not see the market create long-term emotional reactions harm business?

FOODSERVICE DISTRIBUTION — James P. Jones, COO/CFO, Edward Don & Co., Chicago:

First of all I believe we have to take the time to really understand the implications of the "market meltdown" on our individual companies. We, as the financial leaders, need to remain calm in our approach as we analyze issues we have not seen before. We cannot panic nor can we ignore if action needs to be taken. In times of uncertainty as a distributor we focus on cash and the balance sheet efficiency. Stay close to your lenders and update your forecasts as often as necessary. If you see issues, loan defaults, other compliance matters, make all your constituencies aware as soon as possible and offer an expected duration until resolved. It's difficult in these times, but if possible, there is enormous comfort in a leader giving some clarity.

COMMUNITY BANKING — Eustis Corrigan, CFO, MidSouth Bank, Lafayette, La.:

It affects us on an hourly basis. In community banking we're looking at the possibility of a change in our business model. We're seeing the capital markets the way they are, with the cost of, and new and very large regional and money-center banks. Yes, maybe half of the local-owned, community banks in the country just go away, or get consolidated. More than ever before, small and midsize business owners will need CPAs who can act as business advisors. People are going to need a lot of help in sorting this out. It's like the Boy Scout motto, 'Be prepared.' But today you need to be better prepared than ever before.

NOW IT'S YOUR TURN: How is the financial crisis affecting you, your company, and your customers and clients? What are you doing about it? What should the government do? What can CPAs do? We want to quote you, here.

11 Top Tips From CPAs in Business and Industry

Meanwhile, the AICPA Business and Industry Executive Committee has assembled a handy, 11-point checklist to review your business strategies.

The first rule in situations such as this is: Donít panic. Rash decisions often result in undesired results. After paying attention to the first rule it is critical to review your cash management practices and to implement steps to improve them.

Here are some tips:

  1. Doing nothing may be the best action to take. Make sure your overall cash position and anticipated cash needs are in line with your businessís short-term needs, goals and risk tolerance.
  2. Your employees are also going to be concerned about the impact of the economic crisis on the health of your company, the likelihood of continued employment and the impact of this crisis on retirement or other benefit plans that they participate in. Speculation and rumor are destructive forces in any organization.
  3. Regardless of how challenging the particular circumstances of your company may be, communicating effectively and keeping people informed about these issues that have the potential to impact them personally will pay dividends in productivity in the short-term and loyalty in the long run.
  4. Check the safety of any cash deposits you have. Have you considered CDARs (Certificates of Deposit Account Registry) to spread the risk of for short to medium term cash you may have invested in CDs?
  5. Focus on your broader cash-flow planning situation. What are your cash-flow needs for the next 90 days to 120 days? Or 120 days to 180 days? Do you have sufficient cash reserves for the next 30 days to 60 days?
  6. Check with your lenders on the status of your credit lines. Are you in compliance with their terms? Will your bank renew their commitments at similar amounts, rates and terms?
  7. Keep an eye on your accounts receivable. Look out for any new patterns of slow payments and follow up immediately. Review your largest and riskiest accounts to determine the potential impact of credit constraint or economic slowdown on their ability to meet their obligations to you.
  8. Manufacturers should review inventory management practices. Do you have opportunities to reduce your on-hand inventory?
  9. Service companies need to make sure theyíre capturing all their billable hours and are invoicing promptly. Have you billed all your contractual items? How about all your pass-through expenses like billable third-party services and travel and living expenses?
  10. Control what you can in your situation. Can you reduce spending in any areas to put less of a burden on your cash-flow needs?
  11. Review all your insurance coverage. Pay particular attention to coverage you have with those companies that have weak balance sheets. Be careful not to surrender a policy, as securing new coverage might require underwriting that can impact your coverage.

Source: AICPA Business and Industry Executive Committee

WHAT'S ON YOUR LIST? What would you add, change or delete from this list? Tell us here.

HOW SAFE IS YOUR JOB? Join the survey; get the answers.

COMMENTS: Rants, raves, questions or ideas? Contact Rick Telberg.

Copyright 2008 CPA Trendlines/BSG LLC. All rights reserved. First published by the AICPA.

About Rick Telberg

Rick Telberg is editor at large/director of online content.

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Disclaimer: Any views expressed in this article do not necessarily reflect the views of the AICPA or CPA2Biz. Official AICPA positions are determined through certain specific committee procedures, due process and deliberation.