Why This CFO Says Challenging Times Are Also the Most Exciting

CFOs have always had to deal with market risk, no matter the macroclimate.

But what is new for finance leaders, in light of the recent banking failures, is that they now have to consider bank risk.

“[The failures] have made everyone look a little more closely at their banking relationships beyond just the principal risk of their cash, and [bank risk] definitely has been a newly prominent focus area for most folks sitting in the CFO seat,” said Pat Dillon, CFO at intelligent supply chain platform Flock Freight, during a recent interview for “PYMNTS CFO Series: What’s Different?”

A lot depends on where business priorities lie, he emphasized, whether it’s preservation of capital, wanting to earn yield, or something more specific to a particular business situation.

“In some ways, it’s very healthy to have these stressors, in order to consider how best to diversify the business as a whole against a different slew of risks that go beyond just principal risk on the depositor to really include all the operational aspects of the treasury as well,” Dillon said.

Uncertain Times Call for Strong Fundamentals

While the immediate impact of the Silicon Valley Bank (SVB)-led banking failures is starting to ease up, the collapses have highlighted the need for greater and more frequent CFO-led communication around liquidity levels and cash availability at the board, management, and even employee level.

“First and foremost, everyone wants to understand the direct day-to-day implications [of SVB’s collapse]. Does it change the roadmap from a treasury perspective or from broader, strategic perspective, are there operational changes to make?” Dillon said.

He emphasized that finance leaders can drive alignment and accelerate growth in even the most challenging times by being clear about strategic priorities and business landscape assumptions, socializing them with the rest of management, and then stress testing those scenarios across different priorities and with different tactics.

Times of turmoil are also generally good times to focus, or refocus, on fundamentals.

“One of the principal roles of the CFO is to protect the balance sheet,” Dillon said. “Your balance sheet is your lifeblood. It’s your ability to invest in growth and be able to cultivate your technology, it supports nearly all points of strategic differentiation.”

He underscored that maintaining strong fundamentals around liquidity management and financial discipline isn’t just a CFO job, but the responsibility of the whole finance team.

Until the COVID-19 pandemic hit, there hadn’t been a lot of dislocations in the macroeconomic environment for the better part of a decade. But the businesses that have thrived over the past three years have been those that were prepared for every eventuality.

“It’s called into more stark focus the operational aspects of the business and how important it is to avoid any single point of failure, even if for a day,” Dillon said. “You still need to be able to collect customer receivables, you still need to pay your vendors and your employees.”

Clear Line of Sight Is Critical

“It’s been a wild couple of years,” Dillon said, “so hopefully we get to some stabilization and certainty soon. It’s been a highly uncertain environment for the last several years.”

Even the fact that a recessionary environment is upcoming is positive and better than not knowing, he added.

“It’s clarifying for an organization. When you’re in charge of thinking about the balance sheet and the go-forward plan, having even just a little bit more certainty directionally about where you can go — that allows you to make more confident decisions,” Dillon said.

From his perspective, he noted, there is some silver lining in where the broader macro environment is heading — because it allows Flock Freight to make clearer decisions about where it can and should go.

Given the unique dynamic of the freight industry, having that clarity to underpin strategic action is mission critical.

“The cost of capital has gone up recently and that really heightens the focus on ROI [return on investment] in a way that maybe wasn’t as prevalent in a low-rate environment,” Dillon said. “So it is actually a time when the work of the CFO is really gratifying. It’s challenging and there’s a lot of pressure, but your work is really important, and so is the work of your team. Having a strong finance team [in today’s environment] can make a huge impact on the organization.”

As for what he’s looking forward to most?

Dillon said it’s continuing to help bring the incredible digital transformation to play in the physical world.

“All these incredible transformations with cloud computing and the internet have helped us organize and disseminate information. But now, that transformation is increasingly coming to the physical world and transportation, and we are really excited about the momentum.”