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After SVB, cash is once again king, ex-CFO says

March 14, 2023

With steady CFO leadership now paramount, finance leaders should prioritize cash and keep open their lines of communication with shareholders and employees.

The collapse of Santa Clara, Calif.-based Silicon Valley Bank has kept financial leaders busy, with CFOs asessing how the crisis may have impacted their businesses. Keeping one’s focus both on cash and fostering clear communication is especially important for CFOs at this time, Christina Ross, CEO of Cube Software said.

First and foremost, CFOs need to “take stock of the most urgent daily cash need(s) for the next 7, 15, and 30 days,” Ross wrote in an email in response to questions, including payroll, customer distributions and costs of goods sold for those who need to pay suppliers daily. CFOs should also “assess the amount of capital you need to make those payments if you don’t have access to funds,” she said.

Cash is key, but it is also important for financial leaders to “manage communication with employees and shareholders,” Ross said. “If you don’t communicate, they may assume that things are worse than they are.”

Keeping communication open
A self-described former ‘serial CFO’ turned CEO, Ross held CFO and financial leadership positions at several companies before founding Cube, a financial planning and analytics software provider. Previously she served as CFO for video marketing platform Eyeview and as head of finance for online fashion platform, Rent the Runway, according to her LinkedIn profile.

She also served as a board member for the CFO Leadership Council for five years beginning in 2013. Payroll and other cash needs were crucial concerns raised during an emergency meeting Friday following SVB’s failure. Many council members were clients of SVB, according to an update published Monday.

The fallout of SVB’s collapse is “more detrimental to the psychology of banking than anything else,” Ross said, noting the crisis shone a spotlight on the importance of communication for financial and other executive leaders.

Part of the impetus for SVB’s downfall could be the way SVB leadership “managed the announcement of their capital raise and in the subsequent ‘stay calm’ moments,” she wrote.

Indeed, both SVB’s CEO Greg Becker and CFO Daniel Beck have already come under fire, with shareholders suing both executives and the failed bank for undisclosed damages. The class-action suit alleges the executives and bank failed to disclose that the impact of rising interest rates on SVB’s tech and venture capital-focused businesses would leave it “particularly susceptible to a bank run,” according to the suit, Industry Dive sister publication Banking Dive reported Monday.

Clear communication is still critical as the aftermath of the crisis —with New York-based Signature Bank also failing two days after SVB, and First Republic Bank shares seesawing — continues to reverberate throughout the economy.

“CFOs should also practice the importance of good internal communication to present facts and remain level-headed to avoid creating more issues and panic,” Ross said.

Do your due diligence
In addition to addressing daily cash needs, CFOs should take several other steps to safeguard their companies’ financials, such as reaching out to alternative lenders for “short-term bridge loans to support” critical payment needs, Ross said.

Financial leaders without a second deposit account should also contact other banks to find an alternative account for their funds and to redirect any payments that might be incoming into the new or alternative bank, she said.

“Finally, keep a level head,” Ross advised CFOs. “This is the time you are needed most. Stay strong, and don’t panic. After all, panic caused the bank run in the first place.”

Though safeguarding cash is important, both Ross and CFO Leadership Council members stressed the need for financial leaders to move carefully and to consider potential risks when finding a new banking partner. At least one CFO with experience living through the 2008 Lehman Brothers collapse advised fellow financial leaders to “do their due diligence” with banks before signing any paperwork, according to the Monday update from the Council.

With the Federal Reserve and Treasury stepping in Sunday to ensure deposits, it may not be “necessarily needed” to set up second or third bank accounts “if the government guarantees that deposits are safe,” Ross wrote.

“Ironically, SVB may be one of the safest places to keep funds while the dust settles,” she wrote. “Maintaining a second bank account is good in case a black swan event like SVB happens again, but remember it introduces additional operating risk with additional accounts to maintain and control.”

[CFO Dive]

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