8NOVEMBER 2023THE CFO'S ROLE IN RECESSION PLANNINGBy Douglas Maxwell, Chief Financial Officer, American First FinanceRising inflation, coupled with interest rate increases by the Fed, has fueled speculation in the financial press regarding the prospects of an economic recession in the US. While the CFO cannot prevent a recession, the CFO can play an active role in helping his/her firm prepare to weather the storm. "You may not be able to influence external factors facing your organization, but the CFO can certainly take steps in the right direction by focusing on those elements that the company can control," says J. Douglas Maxwell, CFO at American First Finance, LLC. Maxwell offers key concepts to keep in mind as companies prepare for the impending economic storm.Cash is King!Maximizing cash flows to improve liquidity is essential, particularly in rising interest rates and tight credit markets. Maxwell recommends focusing on shortening the cash conversion cycle. The cash conversion cycle measures the time (in days) it takes a company to sell its inventory, collect its receivables, and pay its bills. "Shortening days inventory outstanding and days sales outstanding while stretching days payable can help improve short-term liquidity. This may help avoid or reduce the dependency on the need to draw on revolving lines of credit in managing an immediate cash crunch.Controlling Discretionary SpendingA full examination of departmental P&Ls may lead to discovering expenses that can be avoided or deferred. Areas such as marketing and, travel & entertainment generally are a source of low-hanging fruit. Reviewing vendor contracts approaching a renewal period may also be an opportunity for savings. Pay particular attention to contracts OPINIONIN MY
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