Try to have two years of cash on hand to survive COVID-19, Bessemer Venture Partners CFO Emeritus Jeff Epstein says. If you can't come up with that, it's time to change your plan, the long-time finance executive and former Oracle CFO said last week in a CFO Thought Leader podcast.
"Our advice the first week of the lockdown was, 'We don't know how long this is going to last or if there's going to be a second wave, so you should try to get to two years worth of cash,'" said Epstein, Bessemer's operating partner. The venture capital firm was an early investor in some of the biggest names in technology, including Pinterest, LinkedIn, Shopify, Yelp, Twillo and Twitch, and today is an early-stage investor in some 90 startups.
Epstein advises CFOs to divide the amount their company is losing each month into their cash and, if it comes out to less than 24, it's time to call their vendors to get lower prices, stop making discretionary purchases and take a hard look at layoffs.
"The first priority has to be preserving the company," he said.
If you make pay cuts, offer your employees an equity option in return, so when business returns to something close to normal, they can reap the benefits as a reward for their sacrifice.
"Some of my companies had to take a 20% pay cut for all of their employees," he said. "Executives took a 30% pay cut. It'll probably save the companies. We've recommended companies give equity to employees who've given up cash so if the company does well, they’ll actually make more money over time."
Epstein also recommends taking advantage of favorable conditions in the stock market to raise capital if your metrics tell a good story. "The stock market's at an all-time high in spite of COVID and investors are eager to invest and interest rates are low," he said.
Play your position
No matter the type of organization you're in, Epstein said, the CFO's number one job is to be the c-suite's arbiter of risk.
"Every executive in a company needs to play their position," he said. "So, the CFO should be thinking about the risks: what could go wrong? The general counsel should keep you out of legal trouble. The head of sales should figure out how you grow. Head of marketing should be saying how you expand. The product person should be saying how you develop the product. If the CFO is saying, 'Let's expand as quickly as we can,' you’re not playing your position and you’re not giving the CEO the balance the CEO needs."
The role of straight shooter extends to the CFO's relationship with the board. That means providing members the financial facts without embellishment and sharing bad news as soon as you know it.
"Beyond the ethical question of openness and honesty, the second priority is no surprises," he said. "Of course, there always are surprises, but fundamentally what you want to do is try to share with the board all the things that can go wrong in advance and then if something does go wrong, let them know immediately. Fundamentally under-promise and over-deliver. And then you build credibility with the board. When something goes wrong later, you can draw on that credibility bank you invested in."
Board room agenda setting
The CFO also plays a role in setting the agenda for board meetings, a role that can disproportionately impact a company's fortunes.
The typical board meeting has a three-part structure. The first covers compliance. The CFO updates the compliance committee on the company’s risk issues. In the second phase, the board is updated on the company's initiatives — what Epstein calls a kind of show and tell. The third is the strategic part. This phase is when the executive team presents the board with decisions to be made, and it’s here where the executive team mines the business experience of the members to improve its decisions.
"If you have a five-hour board meeting and you're spending four hours on show and tell and only an hour on decisions you have not yet made, you're doing it wrong," he said. "It should be the other way around. It should be an hour on show and tell and four hours on the key decisions.
"You hired the board not only for governance compliance but also because presumably they know something as businesspeople. Their experience can help you make better decisions. And if you don't tell them until after you’ve made decisions, then you've given up on one of the key value added opportunities of the board," he said.
Know your CEO's priorities
In any organization, the most important relationship for the CFO is with the CEO, Epstein said, and the CFO must know what the boss wants. He recommends CFOs take the lead by asking the CEO what, during the next performance review, would make them glad they hired them.
What three things would make the CEO happy? "It makes it crystal clear what your boss expects of you. Often, your boss will know, and they'll tell you, and sometimes your boss really hasn't thought about it. Getting them to think about it and articulate it is really helpful. Because if they haven't thought about it, you don't want to know in six months they still haven't figured out what your priorities should be."
It's also a great question to ask if you're interviewing for a CFO role, he said.
"Imagine I'm hired for this job and you're doing my performance review a year later," he said, describing a question you can pose to the CEO during an interview. "You say, 'you're so glad you hired me because you've accomplished the following three things.' That’s the question I like the most."