Whatever the role of CFO was before the GFC, there is no doubt that many companies turned to that office for sage wisdom as soon as the veritable mess hit the fan towards the end of 2008. Throughout the period to the end of 2009, company boards and executive teams have been drilling into their balance sheets and P&L statements, looking for ways to cut capex and operating expenditure.
Certainly at the time of maximum uncertainty early in 2009 there was no mood in company boards or executive teams to canvas anything other than the most robust of financial analysis across the enterprise’s activities. Reducing expenses has a more immediate positive affect on the bottom line and is much less expensive to implement than trying to raise the top line by increasing sales. An intensive expense reduction program can stem the flow of cash into non-core expenditure areas without any diminution in product or service quality. Typical expenditure areas examined are logistics costs which include transport, shipping, and warehousing, printing, office supplies, excess charges on utilities and waste disposal, bank charges, and insurance, among many others.
As far as cutting costs few industries have needed to be more forensic than the retail industry. CFOs have gained influence in the retail industry, in particular, within the national chains and listed public companies. Here the CFO has been a strong voice at the table cautioning against optimistic growth projections. Amidst some of the larger listed companies, an end of cheap, abundant credit has brought the cost line into sharper focus than any time since the last credit crunch of the early 1990s.
Retail was already transitioning towards a more fiscally responsible industry as a result of some serious under-performance in the 1990s. It has become more focused on financial discipline even before the GFC and as a consequence of that event CFO roles have been elevated in pursuit of expenditure and cost analysis.
Retail has a number of performance areas peculiar to that industry (e.g. stock turn). The CFO’s role has probably for the first time in many companies been about developing and imposing tougher criteria for expenditures at a time when they could no longer count on consumer spending or credit as a given. At the peak of the downturn the imperative has been to quarantine spending for anything but the most critical functions.
Just as banks and finance companies have tightened the criteria for business spending, so too have CFOs responded to the scarcity of capital. CFOs will, naturally, carefully scrutinize all capex proposals but will now, in addition, be raising the bar for spending approval, examining sales forecasts more stringently. Previously optimistic projections will now need more robust analysis with a heightened aversion to risk. This covers al expenditure areas especially inventory levels. Inventory, a favourite weapon in the battle for cost control, may well be in for even more laser inspection in both retail and manufacturing sectors.
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