CFO Survival Guide_July 2009

Managing in a downturnThe CFO survival guide ►

pwc

The CFO survival guide ►

CFOs are again under the spotlight, this time to successfully manage their businesses through the economic crisis. Being prepared has never been more important. This interactive tool gives essential short to long-term guidance for CFOs managing the downturn, across the many challenges they will face.

To find the information you need, enter those familiar lines on the Income Statement and Balance Sheet. The challenges of your particular business will determine which of these areas are most relevant. Alternatively, if you need to focus on specific time frames, the 'Checklist' section gives access to those.

Of course it is still important to achieve a balance between managing the short-term implications of the downturn on finance, and preserving the long-term vision for the function. Maintaining the ambition of a finance function able to manage compliance and control, drive efficiency and provide insight to the business, is critical if it is to continue moving towards a business partnering role.

2PricewaterhouseCoopers February 2009

© 2009 PricewaterhouseCoopers. All rights reserved

► Income statement


How we can help Maintaining key customer relationships whilst ensuring all available revenues are captured, requires a carefully planned and segmented approach.

PricewaterhouseCoopers has the specific industry expertise, analytical tools, and commercial experience, to help your business with this challenge.

The services we provide include:

• Pricing and contract review

• Customer segmentation and analytics

• Sales force performance improvement

• Revenue assurance.

Potential issues• Do you know which products / customers / channels create and destroy value?

• How has the fall in consumer confidence / spending impacted your business?

What are the opportunities

• Continue to monitor the pricing and contracting process to ensure maximum revenue capture

• Ensure plans are in place to proactively capture customers from failed competitors

• Refocus on growth markets and customer niches.

• Accelerate specific new product developments to ensure range reflects new market requirements

• Track key lead indicators at risk customer segments and ensure any retention efforts are targeted and cost effective

• Review pricing process and controls to maximise pricing compliance

• Review of customer relationships to identify joint contractual and pricing improvement opportunities.

• Segment your customer base (considering risk, price and service sensitivity, underlying value to the business) and develop strategies for each segment

• Undertake a deep review of all existing pricing and contractual arrangements to minimise any revenue leakage

• Review product range and service levels against core customer requirements and remove non-value adding elements of your proposition.

Long-term (> 12 months)Medium-term (3-12 months)Short-term (<3 months)

Revenue protection and growth


How we can help The challenge is to drive profits through the targeted reduction of costs without damaging the long-term health of the business. PricewaterhouseCoopers is currentlyhelping companies to introduce and embed an integrated cost management approach. Our specialists are poised to work with clients to successfully address investment decisions, find more opportunities to increase value and deliver savings programmes to create a significant competitive advantage for the future.


• Cost reduction strategy and programme management

• Business operating model reviews

• Centralisation of corporate functions such as procurement, IT and R&D

• Cost base reviews

• Strategic outsourcing.

Potential issues• Is there a need for a framework to systematically identify, prioritise and execute cost reduction initiatives?

• Do you have concerns over inefficiencies and unnecessary complexities in your organisation’s cost base?

• Has the competitive landscape changed so fundamentally that the previous business operating model may no longer be appropriate and significant change is required?


• Review the business operating model to inform strategy formulation

• Consider introducing process efficiencies such as Lean and Six Sigma

• Assess the potential to centralise corporate functions such as procurement, IT, R&D, etc

• Establish the outsourcing options.

• Establish a strategic cost management framework to continually assess the opportunities and execute cost reduction initiatives

• Benchmark the cost base with industry and identify the improvement areas.

• Identify, prioritise and execute cost reduction initiatives, focusing on the quick wins that are within the company's direct control over next 12 months

• Accurately forecast how much cost improvement is required before taking any aggressive actions such as large layoffs.


Cost of sales – Strategic cost management


How we can help Procurement and supply management is one of the most effective ways that a business can drive out cost, deliver smooth operational and back office processes, and secure vital partner / supplier relationships.

Services we provide include:

• Identifying which goods and services an organisation can make savings on

• Securing and putting in place best deals and contracts

• Supplier and supply chain risk assessment

• Assessing compliance with existing contracts

• Building the right procurement infrastructure to sustain and improve value for money.

Potential issues• Are you effectively leveraging direct and indirect spend across your organisation to reduce costs?

• Are you effectively managing supplier and supply chain risks?

• Do you have the appropriate controls and management in place to prevent value leakage from contracts?


• Procurement transformation – review the design of strategy, organisation, processes and capability to fully leverage value for money

• Assess procurement tax efficiencies

• Assess category outsource / in source opportunities

• Procurement of shared services / outsourcing.

• Source more complex categories using best practice tools and techniques

• Conduct compliance and controls review of purchase-to-pay process

• Review contract management processes and recommendations to improve control and value generation

• Review strategic supplier relationships to identify joint improvement opportunities.

• Identify duplicate payments, unclaimed credits, pricing errors etc

• Conduct spend analysis to identify savings opportunities and construct sourcing plan

• Secure improved deals for quick win categories e.g. office supplies

• Conduct deep analysis of high value contracts to assess level of spend leakage

• Supplier risk assessment.


Cost of sales – Raw materials


How we can help Maintaining key customer relationships whilst ensuring all available revenues are captured, requires a carefully planned and segmented approach.

PricewaterhouseCoopers has the specific industry expertise, analytical tools, and commercial experience, to help your business with this challenge.


• Pricing and contract review

• Customer segmentation and analytics

• Sales force performance improvement

• Revenue assurance.

Potential issues• Do you know which products / customers / channels create and destroy value?

• How has the fall in consumer confidence / spending impacted your business?


• Continuously review the organisational structure to ensure it fits current business needs

• Benchmark remuneration against competitors for cost and tax efficiency

• Minimise employee tax risk to avoid unexpected liabilities and penalties

• If headcount reduction is proposed, plan ahead to ensure any potential tax and legal risks are managed.

• Review allocation of bonuses including performance hurdles

• Introduce deferred compensation to improve cashflow and retention

• Review use of long-term incentive plans for people that matter

• Use effective communication to ensure employees recognise the value of their reward

• Consider opportunities to reduce company car scheme costs through revisions to funding, structure and / or policy.

• Examine the employment cost savings that can be attained via the introduction of salary sacrifice for tax efficient employee benefits

• Consider flexible working opportunities as an alternative to redundancies

• Enhance rigour applied to use of contractors –review to use, policies and contracts

• Review procedures on expense claims and associated tax exemptions and concessions

• Make the most of tax and accounting efficiencies.


Cost of sales – Labour


How we can help We work with you to enhance operational performance and drive profits, through improving efficiency and waste reduction.


• Improving planning and execution

• Stemming value leakage

• Simplifying and improving end-to-end business processes

• Improving the overall cost control environment and creating a cost culture

• Lean and Six Sigma Value Creation, and Process Improvement.

Potential issues• Are you prepared to reduce overheads and drive profits through improving efficiency and driving out waste?

• Do you know which processes and activities are creating or destroying the value in your organisation?

• Is there a need to simplify and improve end-to-end business processes?


• Improve the production planning process

• Redesign the production environment / lines along ‘Lean’ principles.

• Design better incentive schemes to improve productivity of employees

• Reduce the lead time of operations

• Reduce production setup time.

• Improve forecasting i.e. if you have high levels of finished product stocks, or if products are never available

• Reduce levels of Work In Process throughout the system

• Improve plant / equipment utilisation

• Reduce the use of overtime at premium rate.


Cost of sales – Production overhead


How we can help Each customer, product and channel will create costs for your business in a different way. Achieving the right cost-to-serve requires an in-depth understanding of these cost drivers, how they link to operational activities, and how these compare to target and competitors levels.


• Cost-to-serve and activity based costing analytics

• Customer and channel profitability

• Strategic cost reduction

• Cost benchmarking.

Potential issues• Do you know the true costs and profitability for each customer, channel and product / service?

• Are you using this information to target the right products at the right customers in the most cost effective manner?

• What key operational levers can be pulled to reduce your cost-to-serve?


• Consider opportunities to switch to lower cost / outsourced model for non-core operational elements

• Identify strategic target for cost base and implement programme approach to move to this model.

• Refine profitability model to allow ongoing tracking of cost-to-serve

• Ensure underlying cost base is flexed in line with activity levels to maintain margin levels

• Implement targeted reduction initiatives against primary cost drivers

• Ensure working capital implications of any operating model change are reflected in cost-to-serve, to maintain the focus on cash.

• Undertake a high level cost-to-serve review across your key customer, channel and product combinations

• Develop plan for prioritised removal or remediation of most loss making combinations

• Benchmark underlying cost metrics against competitive peer group

• Identify and track key operational cost drivers.


Gross profit


How we can help We can help realise short-term cost reductions and cash generation through corporate support transformation.


• Corporate simplification and reconstruction

• Operational restructuring

• Contractor / supplier review

• Capital project services.

Potential issues• Are you maximising labour arbitrage opportunities by increasing the potential of existing shared service centres (SSCs)?

• Could outsourcing offer an opportunity to generate short term cash flow as well as immediately reducing your burn rate?

• Does your organisation have the flexibility to support significant downsizing and future upsizing?


• Benchmark support costs and identify key areas for improvement

• Redesign the back office to drive cost reduction (through industrialised processing) and optimise cash flow

• Implement e-business solutions for competitive advantage.

• Outsource non-core activities to realise cash (by monetising assets) and reduce ongoing cost

• Renegotiate outsourcing deals where volumes or scope changes are significant

• Review product to market time and identify opportunities to reduce the cost of product development.

• Assess impact of changing volumes on headcount

• Increase scope of work with existing SSCs / outsource providers

• ‘Lift and shift’ work offshore to gain from labour arbitrage

• Review working capital metrics to identify key opportunities to realise cash

• Transfer existing large scale programmes to an outsource provider.


Operating expenses / General administration


How we can help Sales and marketing are the core engines of growth but are often hit hardest by a market downturn. Ensuring the right level of cost reduction is achieved without impacting current revenues or constraining potential to recover with the market, is a challenge we are helping clients address across a range of sectors.


• Commercial diagnostic – benchmarking, performance gap identification and right sizing of sales and marketing operations

• Sales transformation and performance improvement

• Marketing ROI and marketing transformation

• Customer performance management.

Potential issues• Do you know which elements of your commercial operations are value creating, which deliver marginal returns, and which are value destroying?

• How will the shift in customer buying behaviour affect your optimum sales model and channel mix?


• Review route to market strategy for opportunities to reduce risk, through outsourcing elements of the sales process or channel mix (i.e. to third party distributors)

• Track turnaround indicators to ensure sales teams are positioned to capture any market recovery.

• Review sales performance targets and incentive schemes

• Benchmark sales performance against internal best practice and external peer groups

• Implement retention plans for top sales performers

• Review sales process to ensure appropriate control and performance measurement mechanisms are in place

• Review cost and return on all marketing spend and promotional investments.

• Undertake a rapid review of commercial operations considering fit of current sales and marketing operations to revised market environment

• Review and rationalise sales channel mix against revised sales expectations and underlying cost-to-serve

• Review and refine marketing mix to target most at risk revenue stream.


Sales related costs


How we can help Each customer, product and channel will create costs for your business in a different way. Achieving the right cost-to-serve requires an in-depth understanding of these cost drivers, how they link to operational activities, and how these compare to target and competitors levels.


• Cost-to-serve and activity based costing analytics

• Customer and channel profitability

• Strategic cost reduction

• Cost benchmarking.

Potential issues• Do you know the true costs and profitability for each customer, channel and product / service?

• Are you using this information to target the right products at the right customers in the most cost effective manner?

• What key operational levers can be pulled to reduce your cost-to-serve?













Profit before tax


How we can help Our Finance and Treasury teams have a broad range of complementary hedging strategy, cash management and project management skills.


• Preparing of business plans and financial modelling of projections

• Capital raising, debt raising and private equity financing

• Debt restructuring.

Potential issues• Have all of your interest rate exposures been identified and quantified?

• Has the company established a comprehensive risk management framework of policies and procedures that are linked to maximising shareholder value?

• When does accepting interest rate risk enhance shareholder value and when should it be controlled?

• What is the company's fixed / floating mix objective and what metrics are used to evaluate exposure?


• Sharpen long term cash and liquidity forecasting to make optimum use of surplus funds and plan how shortfalls will be funded

• Optimise the capital structure.

• Build a hedging framework that is consistent with the target interest rate risk profile

• Consider banking structure to concentrate cash and minimise interest expense

• Stress testing and sensitivity analysis based on current and future debt levels.

• Identify all interest rate related exposures

• Consider all hedging alternatives

• Consider the effects on existing debt servicing covenants

• Develop an optimal risk profile quantified and approved by the board.


Interest expenses


How we can help As one of China and Hong Kong’s leading tax planning practices we are renowned for the depth and quality of our expertise.

We work with various types of businesses - multinationals, Chinese companies, privately-owned organisations, entrepreneurs, family businesses, trusts, partnerships and private individuals. We help our clients to find effective solutions by combining industry insight with technical expertise.


• Corporate / profits tax advisory

• Transfer pricing

• Corporate and international tax structuring

• Indirect taxes

• Tax management and accounting services

• Corporate tax compliance and outsourcing.

Potential issues• Have you reviewed your corporate tax compliance process? How accurate is your data?

• What areas are opportunities for outsourcing?


• Look at opportunities for transferring tax processes around compliance and reporting to a SSC

• Work on improvements in efficiency and control for indirect tax determination, through the use of a third party indirect tax engine.

• Review existing ERP systems to ensure optimal efficiency and accuracy of tax sensitive items

• Examine opportunities for global outsourcing of corporate and indirect compliance and statutory account preparation, to free up internal finance function resource.

• Review corporate tax compliance process. focusing on earlier submission of returns to bring forward receipt of any available cash refunds –would outsourcing help?

• Review tax compliance and period end reporting processes to identify quick wins in efficiency.


Tax expenses

► Balance sheet

How we can help We work alongside management and stakeholders to review the IT and capital investment programme, identifying cash savings and process improvements. We have also worked with management teams to identify the assets on the balance sheet for disposal, sale and leaseback opportunities. We can help in identifying the right partners who can offer cash, operational and programme capability to support the programme needs.


• Provide advice on prioritising and measuring IT related investment projects

• Assess which IT services should be provided internally and which should be outsourced to third parties providers

• Assist identifying the IT outsourcing partners and exploring the different deal options and model

• Develop the appropriate tracking KPI’s, MI and governance framework for IT investment projects.

Potential issues• Do you have a robust process to identify investments that you may no longer be able to fund or that may no longer be on track to achieve their financial objectives?

• Do you have large amounts of cash locked up in fixed assets such as IT or production equipment?

• Are there any opportunities to reduce cash outflow from your existing investment projects?

• Are you actively working to optimise the value you are getting from your third party relationships?


• Ongoing programme portfolio management against promised benefits

• Assess opportunities to broaden investment pool to enable further strategic programmes

• Review IT organisational synergy’s and operational cost reduction opportunities

• Consider innovative use of technology to further reduce IT and functional cost base.

• Define optimal operational and change programme framework to include and manage third party expertise and cash

• Establish / re-negotiate third party relationships to offload balance sheet

• Establish a standardised project risk register

• Review opportunities for application and process rationalisation.

• Re-assess and re-prioritise strategic capital investment programmes against current and promised benefits

• Review asset base and consider sale and leaseback transactions on facilities and assets

• Review nature of third party relationships with respect to sharing the investment and risk

• Ensure proper controls are in place to monitor the costs and ensure benefits are on track.


Non-current assets – IT and capital investment management



How we can help Creating value by optimising cash flow, profitability and customer service is a fundamental challenge for all businesses. We can help you to deliver this by achieving a step change in your receivables management. PwC is the only 'big four' firm with a specialist receivables management team experienced in both public and private sectors. In addition, we are the only 'big four' firm with a dedicated rapid deployment collections capability.


• Achieve a step change in receivables performance

• Improve customer service and retention

• Minimise impact on receivables of organisational change

• Outsource part or all collections activity.

Potential issues• Are you experiencing pressure on working capital due to high levels of unpaid receivables?

• Is there a lack of transparency across the receivables ledger, customer cash flow issues and bad debt exposure?

• Do you have high levels of customer queries due to inaccurate billing and order fulfilment issues?


• Update credit policy with stakeholder buy-in to enable an effective and consistent approach to be applied to the management of credit

• Develop strategy to optimise credit management resources and assess the potential for engaging outsourcing / shared service providers

• Seek to reduce and harmonise payment terms across the business, by industry sector / country best practice.

• Review and improve the efficiency and effectiveness of all ‘order-to-cash’ processes, from credit risk assessment to payment receipts

• Develop a cash culture and target driven environment to maximise focus on receivables performance, supported by a robust management information and benchmarking toolkit, underpinned by effective debt management technology

• Assess risks associated with credit lines and terms of payment.

• Rapid deployment of receivables specialists to drive cash collection efforts and accelerate the dispute resolution process

• Unearth and analyse reasons for non-payment to increase receivables transparency and exposure levels

• Work closely with insurers to get full credit protection for their trading with particular companies

• Work with insured's to assist them to understand the policies better or to restructure their risks to optimise cost.


Current assets / Trade receivables


How we can help PricewaterhouseCoopers advises companies on developing bank and cash management models and structures to improve cash flow. We can help our clients achieve not only success in managing the direct effects of the economic crisis, but also give treasury a place at the business decision making table. Our experts have a broad range of complementary finance, treasury, technology, accounting and project management skills.


• Cash flow forecasting review

• Banking request for proposal

• Cash management review

• Concentration and international pooling

• Bank account structure assessment and redesign

• Cash collections review.

Potential issues• Does your company experience cash flow difficulties leading to additional short term financing costs?

• Do you have timely, accurate cash-forecast information which enables you to rationalise and reconcile various forecasts across time horizons (short, medium and long term)?

• Are you considering moving cash around the group to meet short term working capital needs?


• Develop and evaluate bank RFP to select a single bank provider for collections and disbursements bank services

• Evaluate international cash concentration and pooling opportunities regarding tax, to efficiently invest and repatriate global cash surpluses

• Establish a cash flow forecast that covers periods in excess of one year, consistent with the company’s strategic planning horizon.

• Evaluate the bank account structure to improve cash flow efficiency

• Evaluate cash collection methods like lockbox and electronic remittances, and provide improvement recommendations to accelerate cash inflows

• Evaluate cash disbursement methods like cheque and electronic payments, and provide improvement recommendations to extend cash inflows.

• Increase the frequency and the level of accuracy of cash flow forecasting, such as introducing 30 day horizon forecasts, by day, to make short-term financing decisions

• Improve cash flow reporting with user friendly formats, clear responsibility and concise documented assumptions

• Link cash flow performance with managerial incentives.


Cash & cash equivalents –Cash forecasting and management


How we can help In looking at how your company can optimise its payables position, we aim to work alongside you to gain an understanding of the key drivers and underlying issues, and to develop a holistic and sustainable solution. Our team of industry experienced specialists are able to provide incisive inputs and an enhanced understanding of the levers and impacts within the ‘procurement-to-pay’ process.


• Rationalisation and renegotiating of payment terms with suppliers

• Consolidation and reduction in the number of vendors

• Commercial trade-offs in relation to the taking of early settlement discounts.

Potential issues• Can you determine whether supplier invoices are paid early or late, with a large spread of payment terms?

• Are suppliers chasing for prompter payment of invoices, with late payment charges incurred and accounts placed on ‘stop’?


• Review the procurement and contract management policy, with a view to improving overall efficiency

• Optimise purchasing power with suppliers, aiming to prioritise spend and consolidate /reduce supplier base

• Develop and extend use of e-Procurement, Electronic Data Interchange (EDI) and e-Billing technology.

• Review and increase the efficiency of the contract compliance, invoice validation and approval process

• Design better incentive packages for suppliers, whilst managing the risk of driving suppliers to financial distress

• Ensure payment timing and methods are controlled and optimised

• Closely examine the liabilities held within the balance sheets (either via a Captive or directly) to ensure that the amounts held are reasonable best estimates for freeing up cash.

• Accurately forecast trade payables to determine critical periods, categorising essential, routine and one-time suppliers

• Assess the appetite for and cost effectiveness of taking settlement discounts, and realise other outstanding discounts, rebates and overriders

• Identify scope for improving and harmonising supplier payment terms and frequencies, whilst also determining the level of disputed invoices and root causes.


Current liabilities


How we can help Our Business Recovery Services team provides refinancing and corporate finance advice, working in close partnership with our corporate clients to develop practical funding solutions to maintain control and minimise costs. We have been active right through the downturn, advising on acquisition facilities, refinancing and restructurings.


• Debt capacity in new credit environment

• Appropriate debt instruments and markets

• Strategy / tactics to approach credit markets

• Terms and conditions, and structuring

• Covenant waiver, reset and restructuring.

Potential issues• Do you have access to sufficient sources of liquidity to finance your operations through the downturn?

• Do you have a concern over lack of cash to repay principal and interest obligations as they fall due?

• Have you got facilities maturing in 2009 and / or 2010? If so, are you considering early refinancing?

• Are you experiencing unpredictable behaviour from lenders, even when relationships have been strong?


• Review your lender / investor base and consider broadening it to give greater access to capital

• Develop new relationships with potential funders outside of your current funding groups

• Be prepared and ready to tap credit markets as ‘windows of opportunity’ open up

• Manage stakeholder relationships through regular and ongoing dialogue.

• Based upon revised business plan projections, calculate covenants over course of 2009

• Consider contingency plans and changes to business plans (e.g. cost savings, deferring capex) if covenants are under pressure

• In event of potential covenant breaches, create waiver proposals for banks / funds, to ensure you stay in control

• Act early and decisively in order to drive your agenda with lenders.

• Revise and stress test business plans to confirm their robustness during the downturn

• Review hedging arrangements in light of the rapidly changing interest rate environment

• Consider your financing needs for at least 2009 and 2010

• Develop / maintain relationships with all lenders, not just facility agent banks

• Consider all credit markets, not just traditional finance sources.


Non-current liabilities – Funding and re-financing


How we can help The Corporate Finance teams at PricewaterhouseCoopers, are made up of more than 800 specialists throughout the world. We actively leverage our extensive network across the firm from a wide range of industries and disciplines, and have worked on some of the most complex transactions in recent times.


• Align strategy with financing requirements

• Provide advice on which is the most appropriate market and instrument to use

• Provide advice on Initial Public Offerings (IPOs)

• Provide advice on privatisation and de-listing

• Work closely with private equity helping them to make acquisitions and advising on disposals.

Potential issues• Do you need to dispose of an asset or division quickly and efficiently to improve the cashflow?

• Are you looking for efficient ways to raise funds to expand your business?

• Do you feel your company is undervalued by public markets and therefore, are you considering public-to-private transactions and de-listings?

• Are you a private equity house with financial pressures in your portfolio around reducing facility levels, debt maturity dates and / or onerous covenant terms?


• Keep an eye on potential acquisition opportunities to ensure your company emerges from the economic downturn with a stronger competitive position.

• If necessary, consider public-to-private transactions or de-listings if the company is undervalued by public markets

• Implement post-merger integration plans to improve operational efficiency and benefits from the planned synergies.

• Review the adequacy of financing arrangements and whether they are appropriate

• Evaluate which part of the business can be disposed of to free up cash without impacting the company

• Communicate openly and frequently with key stakeholders to enhance transparency.


Equity – Corporate finance


How we can help Transaction Services helps companies make acquisitions, divestitures and strategic alliances, and to access the global capital markets. In each case we have the same overriding objective - to help clients maximise the return on their deal. We act as deal managers helping clients get deals done faster, with less disruption and at a more attractive price. Using cross-functional teams, we bring together all the relevant expertise from across the firm, including tapping into the firm’s vast industry sector knowledge.


Potential issues• Are you contemplating a particular transaction, such as the acquisition of weaker or underperforming competitors; disposals of non-core assets to realise cash;

refinancing debt to put new covenants in place or taking a minority interest to provide liquidity to target companies?

• Are any recent acquisitions underperforming or not integrating in line with expectations?

• Do you need greater clarity of the current market environment?

• Do you have short term cash requirements?


• Strategic reviews of long-term corporate strategy and new market entry

• Buy side and vendor due diligence

• Review of sale and purchase agreements.

• Post-merger integration to integrate new acquisitions quickly and identify synergies

• M&A strategic review to identify medium term targets in current market environments.

• Carve-out and Vendor due diligence on non-core assets

• Bid Support / Defence on public transactions

• Market review to understand the changing market dynamics

• Cash optimisation

• Financial restructuring to release cash.


Equity – Transaction services


• Bid support & defence

• Financial due diligence (buy side)

• Financial due diligence (sell side)

• Sales and purchase agreement (SPA)

• Business modelling

• Commercial & market due diligence

• Post-deal services

• Structuring.

► Other key actions

How we can help We can help clients assess new and often urgent, risks and challenges. Clients are facing increasing pressures to cut costs and create efficiencies at the same time as driving sustainable performance. Many companies are trying to balance these differing priorities and are looking for independent assurance.


Potential issues• Are financial pressures shifting efforts away from maintaining the integrity of business as usual processes?

• Are profit warnings possible?

• What business risks and sensitivities on performance could lead to a potential breach in banking covenants?

• Are your controls and compliance activities cost effective? Do you have an assurance framework in place to ensure your projects achieve success?

• Have you built a robust system of governance, regulation and compliance which doesn’t need to be reinvented with each new initiative or regulation?


• Training and support of in-house internal audit staff

• Access to relevant benchmarks for processes and controls

• Seek comfort that the right processes, controls, technology and people are in place

• Improve governance around information reporting and implement the right controls around data.

• Reassurance that internal audit and risk management are operating effectively

• Conduct a current state assessment of Governance Risk and Compliance (GRC) capabilities and identify gaps

• Reduce costs and improve performance of key processes

• Revisit major contracts to determine real value for money.

• Identify new risks e.g. fraud, on third party partners etc

• Review risk management spend and internal audit plan

• Review controls over cash and working capital management systems and process

• Ensure compliance with financial regulation and proper controls for financial practices.


Managing risks, compliance and internal audit


• Understanding the cost and efficiency of your functions risk management and internal audit

• Nurturing stakeholder relationships through a downturn

• Streamlining inefficient business processes and controls.

• Reducing risk of project failures

• Providing commercial assurance over controls

How we can help We can provide an insightful benchmark supported by PricewaterhouseCoopers' experience of how top performers achieve results. Our strategic assessment against the 3 dimensions - efficiency, controls & compliance and insight - provides a framework for Executive discussion and agreement and allows you to monitor the business continuously.


• A high value, strategic analysis focussing on the data

• Customer feedback and executive perspectives reinforce and support the results

• Feedback includes both internal divisional and external peer group comparisons

• High-level set of recommendations to help make sustainable progress toward your future vision for finance.

Potential issues• What initiatives could you undertake to improve the efficiency and effectiveness of your finance processes?

• How do you align finance with the business to provide an effective performance management and challenge mechanism?

• How do you ensure that you have the appropriate balance of robust controls without constraining the business?

• What is your current performance? How are top quartile performers achieving results?


• Compare yourself to a continually updated peer group to track performance and trends

• Implement an optimal organisational design and technology

• Ensure a balance between cost efficiency, controls and insight

• Review progress against baseline and agreed objectives.

• Provide a baseline to measure progress against

• Provide reassurance over current or future strategy

• Determine specific areas or metrics that can be assessed on an ongoing basis and identify areas for improvement

• Determine / change role of finance based on informed conclusions.

• Determine the performance of your finance function against a relevant peer group from PwC’s extensive database


• Measure performance against i) efficiency ii) controls & compliance iii) business insight

• Seek external challenge to inform discussions about top quartile performance and emerging trends

• Determine internal divisional performance.


The PwC Finance Benchmark


How we can help At PricewaterhouseCoopers, we help our clients achieve both their short and long term ambitions of a better planning, reporting and decision support function. We assess, design and implement the processes and systems that provide value-adding information, drive accountabilities, and improve decision support.


• Management information (MI) quality assessments and improvement roadmaps

• Measures and metrics alignment to strategy

• Product and service profitability analysis

• Budgeting and forecasting improvement

• Short-term forecasting models on cash and liquidity

• MI system selection and rollout.

Potential issues• Have you reconsidered and revised KPIs and critical reporting templates in light of changing circumstances?

• What are the key risk areas surrounding the business? How should the situation be monitored against these risk factors?

• Are there any sound linkages between operating plans and financial plans to ensure the optimal operational routes are taken?

• Do you receive sufficient and timely information to aid your decision-making in the downturn?


• Implement a reporting environment which provides a holistic picture of the organisation

• Integrate the management reporting process with planning and budgeting to improve strategy execution

• Utilise the latest MI technology to improve the quality, cost and timeliness of information.

• Improve accuracy and usefulness of the management reporting

• Identify and forecast the key opportunities and risks and develop response plans

• Improve understanding of the drivers of key performance variables in a downturn.

• Increase reporting frequency and detail for high risk areas

• Focus on monitoring a small number of key activities

• Include key external indicators in routine reporting

• Communicate widely and regularly to enhance buy-in.


Planning, reporting and decision support


► Checklists – Income statement opportunities

Do you know which products/customers/channels create and destroy value?

Has the competitive landscape changed so fundamentally that your current operating model needs changing?

Are you effectively leveraging direct and indirect spend across your organisation to reduce costs?

Are you considering cost reductions, but do not want to reduce your skill pool for longer term growth?

Are you prepared to reduce overheads and drive profits through improving efficiency and driving out waste?

Does your organisation have the flexibility to support significant downsizing and future upsizing?

Does your organisation know which key operational levers can be pulled to reduce cost-to-serve?

Have all of your interest rate exposures been identified and quantified?

Have you reviewed your corporate tax compliance process? How accurate is your data?

• Continue to monitor the pricing and contracting process to ensure maximum revenue capture

• Ensure plans are in place to proactively capture customers from failed competitors

• Refocus on growth markets and customer niches.

• Accelerate specific new product developments to ensure range reflects new market requirements

• Track key lead indicators at risk customer segments and ensure any retention efforts are targeted and cost effective

• Review pricing process and controls to maximise pricing compliance

• Review of customer relationships to identify joint contractual and pricing improvement opportunities.

• Segment your customer base (considering risk, price and service sensitivity, underlying value to the business) and develop strategies for each segment

• Undertake a deep review of all existing pricing and contractual arrangements to minimise any revenue leakage

• Review product range and service levels against core customer requirements and remove non-value adding elements of your proposition.


Do you know which products/customers/channels create and destroy value?


• Review the business operating model to inform strategy formulation

• Consider introducing process efficiencies such as Lean and Six Sigma

• Assess the potential to centralise corporate functions such as procurement, IT, R&D, etc

• Establish the outsourcing options.

• Establish a strategic cost management framework to continually assess the opportunities and execute cost reduction initiatives

• Benchmark the cost base with industry and identify the improvement areas.

• Identify, prioritise and execute cost reduction initiatives, focusing on the quick wins that are within the company's direct control over next 12 months

• Accurately forecast how much cost improvement is required before taking any aggressive actions such as large layoffs.


Has the competitive landscape changed so fundamentally that your current operating model needs changing?



• Procurement transformation – review the design of strategy, organisation, processes and capability to fully leverage value for money

• Assess procurement tax efficiencies

• Assess category outsource / in source opportunities

• Procurement of shared services / outsourcing.

• Source more complex categories using best practice tools and techniques

• Conduct compliance and controls review of purchase-to-pay process

• Review contract management processes and recommendations to improve control and value generation

• Review strategic supplier relationships to identify joint improvement opportunities.

• Identify duplicate payments, unclaimed credits, pricing errors etc

• Conduct spend analysis to identify savings opportunities and construct sourcing plan

• Secure improved deals for quick win categories e.g. office supplies

• Conduct deep analysis of high value contracts to assess level of spend leakage

• Supplier risk assessment.


Are you effectively leveraging direct and indirect spend across your organisation to reduce costs?


• Continuously review the organisational structure to ensure it fits current business needs

• Benchmark remuneration against competitors for cost and tax efficiency

• Minimise employee tax risk to avoid unexpected liabilities and penalties

• If headcount reduction is proposed, plan ahead to ensure any potential tax and legal risks are managed.

• Review allocation of bonuses including performance hurdles

• Introduce deferred compensation to improve cashflow and retention

• Review use of long-term incentive plans for people that matter

• Use effective communication to ensure employees recognise the value of their reward

• Consider opportunities to reduce company car scheme costs through revisions to funding, structure and / or policy.

• Examine the employment cost savings that can be attained via the introduction of salary sacrifice for tax efficient employee benefits

• Consider flexible working opportunities as an alternative to redundancies

• Enhance rigour applied to use of contractors –review to use, policies and contracts

• Review procedures on expense claims and associated tax exemptions and concessions

• Make the most of tax and accounting efficiencies.


Are you considering cost reductions, but do not want to reduce your skill pool for longer term growth?


• Improve the production planning process

• Redesign the production environment / lines along ‘Lean’ principles.

• Design better incentive schemes to improve productivity of employees

• Reduce the lead time of operations

• Reduce production setup time.

• Improve forecasting i.e. if you have high levels of finished product stocks, or if products are never available

• Reduce levels of Work In Process throughout the system

• Improve plant / equipment utilisation

• Reduce the use of overtime at premium rate.


Are you prepared to reduce overheads and drive profits through improving efficiency and driving out waste?


• Benchmark support costs and identify key areas for improvement

• Redesign the back office to drive cost reduction (through industrialised processing) and optimise cash flow

• Implement e-business solutions for competitive advantage.

• Outsource non-core activities to realise cash (by monetising assets) and reduce ongoing cost

• Renegotiate outsourcing deals where volumes or scope changes are significant

• Review product to market time and identify opportunities to reduce the cost of product development.

• Assess impact of changing volumes on headcount

• Increase scope of work with existing SSCs / outsource providers

• ‘Lift and shift’ work offshore to gain from labour arbitrage

• Review working capital metrics to identify key opportunities to realise cash

• Transfer existing large scale programmes to an outsource provider.


Does your organisation have the flexibility to support significant downsizing and future upsizing?













Does your organisation know which key operational levers can be pulled to reduce cost-to-serve?


• Sharpen long term cash and liquidity forecasting to make optimum use of surplus funds and plan how shortfalls will be funded

• Optimise the capital structure.

• Build a hedging framework that is consistent with the target interest rate risk profile

• Consider banking structure to concentrate cash and minimise interest expense

• Stress testing and sensitivity analysis based on current and future debt levels.

• Identify all interest rate related exposures

• Consider all hedging alternatives

• Consider the effects on existing debt servicing covenants

• Develop an optimal risk profile quantified and approved by the board.


Have all of your interest rate exposures been identified and quantified?


• Look at opportunities for transferring tax processes around compliance and reporting to a SSC

• Work on improvements in efficiency and control for indirect tax determination, through the use of a third party indirect tax engine.

• Review existing ERP systems to ensure optimal efficiency and accuracy of tax sensitive items

• Examine opportunities for global outsourcing of corporate and indirect compliance and statutory account preparation, to free up internal finance function resource

• Review corporate tax compliance process. focusing on earlier submission of returns to bring forward receipt of any available cash refunds –would outsourcing help?

• Review tax compliance and period end reporting processes to identify quick wins in efficiency.


Have you reviewed your corporate tax compliance process? How accurate is your data?


► Checklists – Balance sheet opportunities

Do you have a robust process to identify investments that may no longer be achieving financial objectives in the downturn?

Do you need to manage working capital more closely due to high levels of unpaid receivables?

Does your company experience cash flow difficulties leading to additional short term financing costs?

Are your suppliers chasing for prompter payment of invoices, are late payment charges incurred and accounts placed on ‘stop’?

Do you have access to sufficient sources of liquidity to finance your operations through the downturn?

Do you need to dispose of an asset or division quickly and efficiently to improve the cashflow?

Are you looking for efficient ways to raise funds to expand your business in the current climate?

Are your recent acquisitions under performing or not integrating in line with expectations?

• Ongoing programme portfolio management against promised benefits

• Assess opportunities to broaden investment pool to enable further strategic programmes

• Review IT organisational synergy’s and operational cost reduction opportunities

• Consider innovative use of technology to further reduce IT and functional cost base.

• Define optimal operational and change programme framework to include and manage third party expertise and cash

• Establish / re-negotiate third party relationships to offload balance sheet

• Establish a standardised project risk register

• Review opportunities for application and process rationalisation.

• Re-assess and re-prioritise strategic capital investment programmes against current and promised benefits

• Review asset base and consider sale and leaseback transactions on facilities and assets

• Review nature of third party relationships with respect to sharing the investment and risk

• Ensure proper controls are in place to monitor the costs and ensure benefits are on track.


Do you have a robust process to identify investments that may no longer be achieving financial objectives in the downturn?



• Update credit policy with stakeholder buy-in to enable an effective and consistent approach to be applied to the management of credit

• Develop strategy to optimise credit management resources and assess the potential for engaging outsourcing / shared service providers

• Seek to reduce and harmonise payment terms across the business, by industry sector / country best practice.

• Review and improve the efficiency and effectiveness of all ‘order-to-cash’ processes, from credit risk assessment to payment receipts

• Develop a cash culture and target driven environment to maximise focus on receivables performance, supported by a robust management information and benchmarking toolkit, underpinned by effective debt management technology

• Assess risks associated with credit lines and terms of payment.

• Rapid deployment of receivables specialists to drive cash collection efforts and accelerate the dispute resolution process

• Unearth and analyse reasons for non-payment to increase receivables transparency and exposure levels

• Work closely with insurers to get full credit protection for their trading with particular companies


Do you need to manage working capital more closely due to high levels of unpaid receivables?


• Develop and evaluate bank RFP to select a single bank provider for collections and disbursements bank services

• Evaluate international cash concentration and pooling opportunities regarding tax, to efficiently invest and repatriate global cash surpluses

• Establish a cash flow forecast that covers periods in excess of one year, consistent with the company’s strategic planning horizon.

• Evaluate the bank account structure to improve cash flow efficiency

• Evaluate cash collection methods like lockbox and electronic remittances, and provide improvement recommendations to accelerate cash inflows

• Evaluate cash disbursement methods like cheque and electronic payments, and provide improvement recommendations to extend cash inflows.

• Increase the frequency and the level of accuracy of cash flow forecasting, such as introducing 30 day horizon forecasts, by day, to make short-term financing decisions

• Improve cash flow reporting with user friendly formats, clear responsibility and concise documented assumptions

• Link cash flow performance with managerial incentives.


Does your company experience cash flow difficulties leading to additional short term financing costs?


• Review the procurement and contract management policy, with a view to improving overall efficiency

• Optimise purchasing power with suppliers, aiming to prioritise spend and consolidate /reduce supplier base

• Develop and extend use of e-Procurement, Electronic Data Interchange (EDI) and e-Billing technology.

• Review and increase the efficiency of the contract compliance, invoice validation and approval process

• Design better incentive packages for suppliers, whilst managing the risk of driving suppliers to financial distress

• Ensure payment timing and methods are controlled and optimised

• Closely examine the liabilities held within the balance sheets (either via a Captive or directly) to ensure that the amounts held are reasonable best estimates for freeing up cash.

• Accurately forecast trade payables to determine critical periods, categorising essential, routine and one-time suppliers

• Assess the appetite for and cost effectiveness of taking settlement discounts, and realise other outstanding discounts, rebates and overriders

• Identify scope for improving and harmonising supplier payment terms and frequencies, whilst also determining the level of disputed invoices and root causes.


Are your suppliers chasing for prompter payment of invoices, late payment charges incurred and accounts placed on ‘stop’?


• Review your lender / investor base and consider broadening it to give greater access to capital

• Develop new relationships with potential funders outside of your current funding groups

• Be prepared and ready to tap credit markets as ‘windows of opportunity’ open up

• Manage stakeholder relationships through regular and ongoing dialogue.

• Based upon revised business plan projections, calculate covenants over course of 2009

• Consider contingency plans and changes to business plans (e.g. cost savings, deferring capex) if covenants are under pressure

• In event of potential covenant breaches, create waiver proposals for banks / funds, to ensure you stay in control

• Act early and decisively in order to drive your agenda with lenders.

• Revise and stress test business plans to confirm their robustness during the downturn


• Consider your financing needs for at least 2009 and 2010

• Develop / maintain relationships with all lenders, not just facility agent banks

• Consider all credit markets, not just traditional finance sources.


Do you have access to sufficient sources of liquidity to finance your operations through the downturn?


• Keep an eye on potential acquisition opportunities to ensure your company emerges from the economic downturn with a stronger competitive position.

• If necessary, consider public-to-private transactions or de-listings if the company is undervalued by public markets

• Implement post-merger integration plans to improve operational efficiency and benefits from the planned synergies.

• Review the adequacy of financing arrangements and whether they are appropriate

• Evaluate which part of the business can be disposed of to free up cash without impacting the company

• Communicate openly and frequently with key stakeholders to enhance transparency.


Do you need to dispose of an asset or division quickly and efficiently to improve the cashflow?

Are you looking for efficient ways to raise funds to expand your business in the current climate?

Are your recent acquisitions under performing or not integrating in line with expectations?


© 2009 PricewaterhouseCoopers. All rights reserved. 'PricewaterhouseCoopers' refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

► Contact

Edmund Lee, Partner

+852 2289 2714

[email protected]

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CFO Survival Guide_July 2009

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