In a preview of his fall 2020 Pennsylvania CPA Journal Business & Industry column, Michael F. De Stefano, CPA, chief financial officer for RKL in Lancaster, Pa., discusses the experience of his organization when it became clear that the coronavirus pandemic was going to be more than just a fleeting inconvenience, including applying for a Paycheck Protection Program loan, becoming experts on new communications channels, and taking steps to reduce burnout among colleagues and staff.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript

The coronavirus pandemic has wreaked havoc on so many segments of the accounting industry, many of which we have covered on this program. Today, we cover repercussions felt by our members in business and industry. In this episode, we discuss the experience of our guest, Mike De Stefano, chief financial officer with RKL, who wrote on this topic in the fall 2020 Pennsylvania PCA Journal Business & Industry column. In his piece, he takes us behind the scenes of his thought process as RKL navigated dilemmas presented by the pandemic and offers tips for being ready for the next challenge.

In your position as CFO, as the coronavirus pandemic was building up and it was becoming clear that we're going to be in for a larger disruption than was anticipated, can you take us through your thought process as far as your concerns, your preparation, and what steps you took to mitigate risk?

[De Stefano] I think that thought process changed a lot as we've gone through the different phases of this pandemic. We're multiple months into it now. Initially, we were very heavily focused on building out cash flow models, expense projections, and then, of course, the PPP application as well. The focus on the cash flow was done in greater depth than we've ever done. That was done to try and provide multiple scenarios of what incoming and outgoing cash would look like. We did that because we wanted to be prepared for conversations on worst-case scenarios, as well as the more probable ones, which were much better and easier to deal with.

I know early on we had very little confidence in business at normal levels, even with it being the heart of tax season in our profession. Then, as time went on and more guidance came out, the stimulus packages kicked in, and we started to gain some clarity on the various cash flow scenarios. That was helped a lot by just that passage of time, seeing that clients were continuing to pay, and maybe, at that point, hadn't started to feel any of the pain. We didn't know that in March when we're sitting there trying to fill out that application.

You asked about some of the steps we had taken and, internally, we did multiple things to hedge off what could've been a negative cash flow as the months went out. We absolutely stepped up our collection efforts. That was unusual for us in the heart of tax season because usually people are focused. But the government gave us an extra three months there, so we took some of that time and focused on some of the older receivables that were out there. We also suspended some of the fringe benefits and we did go through a small head count reduction during that process as well. But where we spent most of our time within our finance department is that heavy scrutiny on not just the cash flow, but the discretionary spending for the firm as a whole. All of this was done in an effort to ensure that we'd have enough cash to last through the summer and beyond while we waited for the PPP loan to come through.

Your firm, as you're mentioning there, went through the Paycheck Protection Program loan process. Can you tell us a little bit about what that experience was like for your team?

[De Stefano] That was an intense week leading up to the filing of the application. I think back to that time period, and we're near the end of March. The media hype surrounding the whole PPP program necessitated that companies get their applications in as soon as possible to increase your odds of receiving funds. Seems like a way that maybe wasn't the best or most thought out. To that end though, we were operating in the environment that we were dealt. I vividly recall working well into the morning hours in the days leading up to submitting the application. Internally, because of the sensitivity of the information that was needed, a lot of it being payroll-driven, we had a small team that worked on it. But we also needed to keep people focused on the day-to-day business tasks. So that led to a small group of people, whether it be in our senior leadership team, our finance department, and partnering with our HR group as well.

I remember the day before. I think it was 3:00 when I finally shut down the computer. My wife was like, "What are you working on?" At the time, I hadn't really shared with her that we were pressing forward with filing the application to get the loan. She's like, "This feels a lot like your old job when you were selling the company. You're not selling the company again?" And I said, "No." I said, "This is something we need to do, and we have to be there as early as possible because they're projecting the money's going to run out so fast." So I draw that parallelvto selling the company, which was a six-month process in my prior job. It had that kind of intensity to it, but it was for a much-shortened period.

When we hit submit on the application, and it was a Friday about 4:30, it felt good. Then fortunately, a couple weeks later, we had received word that we had been funded at the levels that we had applied for. But I say intense focus, lots of caffeine, and a great amount of teamwork is how we got through it.

Your column in the magazine, it focused on some lessons learned to be prepared for the next disruption, so we can go over a few of those, because we know there's going to be a next one. How has the pandemic affected your or your firm's thinking in the areas of cash flow projections? You touched on those a little bit earlier.

[De Stefano] That was something that was a major focus for us right out of the gate. I had rejoined RKL in February 2019. Internally, we had been working on analyzing cash flow from the various sources prior to the pandemic starting up. We were fortunate to have had that head start in which we pretty much built a year's worth of data of all the ins and outs. That was done just so we could get an understanding being new to this side of the business. We also had our controller who had joined us in June of that year, so he was trying to get that understanding along with myself, just to see. Where are the pain points throughout the year? When are the highest cash needs? How cyclical is cash when you're in busy season versus coming out of it? There are multiple aspects to our company that are just not traditional accounting, so we spent a lot of time during that year building that. I'm thankful that we did because that became the base for our cash flow projections.

Prior to joining RKL, the management team at my prior employer had a rather strong interest in the high level of cash, so we had built a model that showed the daily activity, so that they could see the ins and outs. What I did is I reached out to a colleague who was still at the place I used to work and asked her if she wouldn't mind just sending me the shell of that template, which was a 13-week cash flow projection sheet that they had a consultant come in and help us build in a way that private equity likes to see. When she sent that over, we didn't have to recreate the whole wheel.

We basically had the format in place, so we overlaid that with our one year's worth of analysis on the cash flow. When we married up the two, it gave us a really good base to project out what would be when we would start to run out of cash, in worst-case scenario. What if we did cash? What if cash only came in at 50% of a year ago, 75%, 90%? We were able to run those multiple scenarios, so it's been an invaluable exercise for us. It certainly accelerated. It's something we continue today. We're now almost six months into this process and we're still using that model and rolling it forward now through the end of the year.

In the area of disaster recovery planning, what did you find that your firm was prepared for, and were there any areas that you found you needed to improve upon?

[De Stefano] That was another area we had been actively working on over the past year. Our plan needed to be updated, so we were working on that here and there over the last nine months. I have to imagine that many committees that work on the disaster recovery plan didn't think that the impending disaster that was right around the corner was going to be in the form of a pandemic requiring quarantine. I'm pretty sure nobody had that on their board.

We were fortunate at RKL where our standard issuance is a laptop to all of our team members. That made it easy to transition into a remote working environment with almost all the employees already being mobile. What I think we were pleasantly surprised by is how easy that transition was because of the standard issuance being the laptop. Our IT group had invested a lot of time putting that in place. I don't say it was everywhere. There were some people who had desktops. But with the way the network is set up with, I guess it's cloud computing and using data servers that are centralized, it helped give us a good look that, yes, that can absolutely handle it or where maybe we had to increase bandwidth to keep the network running a little bit quicker.

In terms of improvements, I think maybe if I said somewhere we had some more work we could've done, it was in the things that had to be done in and around the physical offices, that maybe we hadn't put that much thought into. When clients mail all the checks to the office and you can't get into the office, how do you get somebody in there to be able to pick up the checks, to deposit the checks into the bank, when the bank's remote software is sitting on someone's desk?

We had to accelerate our curve on electronic delivery methods in a variety of areas, whether it be safe send for tax returns or figuring out maybe alternative ways to take payments from clients that were sort of auxiliary methods in the past. So that would be an area where it's like those things that you physically have to do – a scanner, a copier – that can do it in a matter of seconds. Now you're trying to do it through an app on your phone when you're not the most technologically savvy, too. Those are the areas that we found we probably still have a little bit more work to do. But this has shown us the path to get there.

What would you say you've learned in the area of communication and communication channels? How did you ensure you were able to effectively communicate to clients or staff?

[De Stefano] This was an area we had to probably put the most effort into. No longer could we have those natural face-to-face meetings where you just walk down the hall and touch base with a colleague on an issue. I'm one who prefers that. I like being able to see people and just have a conversation. I think it helps the conversation as a whole. Instead, what we had to do is we replaced those face-to-face meetings with Zoom, and that became the preference of the people within the firm. I know that there are other vehicles out there, whether it be Microsoft Teams or the traditional phone. Some people probably did FaceTime initially when we were trying to get our arms around Zoom.

Zoom is something we had in place and it wasn't used anywhere near like it is right now. I don't think we can go through a day without a Zoom call of some sort. We've had department meetings this way. We've created group chats within Zoom to facilitate information. Those small group chat lists have been proven to be a very effective tool because it's an easy way to communicate in real time to multiple people in the same group, rather than an email. You don't know when somebody might pick that up. I guess in a lot of ways it's just like sending a group text message, and probably a heck of a lot easier for the younger generation to adapt to than maybe what we see some of the older generation. But Zoom has been something that has really helped. For us, it's become the norm. Somebody just wants to see another face. They might just call somebody up and you just have a chat. It's sort of like stopping by someone's office, only now it's done virtually.

I guess there's a term that's out there now, and it's like, "Are you going to Zoom call shame me so that I have to show my face right now?" That's kind of been a fun little thing to go through.

Why would you say it's so important at a time like this to have documented roles and responsibilities for your staff? Because that was something in your piece that you really stressed.

[De Stefano] I love this question and I'm glad you sort of give me an avenue to stand on this. Whether it's a pandemic or not, the obvious answer to this is so that the organization is not impacted by whatever happens. In this case, it's a pandemic requiring quarantining. If you go around the finance department at RKL, they'll tell you that I'm often heard telling people that the organization is bigger than any of us, and it's our duty to make the organization better today than it was yesterday. I've found over time, to do that, that the documentation of our roles is critical. It was critical before the pandemic and it continues to be today. That basis is rooted in the fact when I was in private industry, and I was a controller of a company, the CFO passed away with very short notice. He did not document a lot of the procedures. He had been in that role for 27 years and just knew. Unfortunately, that didn't do us any good when we had the sudden turn of events.

Out of that, I've come to truly appreciate the value of documenting roles. I've carried that into many conversations and jobs that I've had, or roles that I've had, since then. Early on, too, I mentioned that we had a head count reduction. For us, that meant that workloads had to be redistributed or absorbed by others within the department. It's a lot easier to do that when you understand what each person does on a daily, weekly, or monthly basis. I've got to say that's never the intent when you're documenting roles. But you just never know what can happen, and we can't control the events around us.

Maybe it's an issue where someone's out due to vacation or sick time, maybe they need family medical leave. Having a list of what people is responsible for, what their tasks are, makes it easier to transition and help the business on a day-to-day basis. It never goes well when you explain to a vendor that I can't cut checks to you today because our person who processes checks is off for the next week. That's not an acceptable answer. I'm a big advocate of cross-training, and that's a great way to help someone feel comfortable in and around that role because you don't really want to have somebody who's stepping into that role to have high anxiety and get paralyzed by fear of doing something wrong. I think there are so many good reasons to understand and document what our roles are. This pandemic just helped bring that into focus for areas that we've already done a good job on and areas that we need to do more on.

I think maybe the documented roles and responsibilities can help a little bit here because employees of firms and businesses are really being tested right now, juggling the responsibilities while working from home. What steps has RKL taken to reduce stress or fear of burnout?

[De Stefano] That's something we've actively talked about, especially as the pandemic and the quarantining pushed out multiple months. There's several things that we've done at RKL to try and help exactly what you're saying – reduce stress and burnout – because we've found that people were taking their commute time and translating that into extra hours to work. I'm guilty of that, too, where you might've been in the car for an hour a day, coming and going from work, and that just turned into an extra hour of work. My wife's been kind enough to remind me of that a time or two. Some of the steps that we've taken I think have helped, and include flexible work hours to balance out the needs of family.

All of a sudden, you have your children at home. They don't go to school because they're online virtually learning. They still need the help. From the time that they're up and working on their homework, employees can't truly be focused on the work that they need to do and do it as effectively and efficiently as they normally would. So, the flexible work arrangements may include waking up at 4:00 AM, working for four hours, and then putting all the work down until maybe 4:00 or 5:00 in the afternoon when a spouse may be home. Then you work from 5:00 to 9:00, or 5:00 to 10:00, to get all of your work done. That certainly helped.

One of the other ones that I believe made a difference to people, because we're in an office and we have maybe dual monitors and certain equipment set up, the firm issued an equipment bonus to all employees to go out and buy the equipment that they would need to improve their work situation at home. That could've been spent on monitors, a docking station, a printer, a scanner. In some instances, the people wanted to stop working at the dining room table, so they could go out and buy a desk or a certain type of chair. They were sitting on a fold-out chair.

This was done to help people get situated at home a little better, with the thought being, and I think it's going to bear out, that we're probably not going to be out of this in the next three to six months. I think that helped people get situated a little bit better at home. Now, all of a sudden, you're not sharing an office with your spouse, who may also be working from home. You can equip yourself with the same equipment and take away that stress. We also implemented strong encouragement to use PTO in the summer. Historically, in public accounting firms, very few people take vacations the first four months of the year. Then maybe 50% of the vacation is taken in the next four months of the year when we're in the summer months.

What we were seeing is, with people working from home and having nowhere to go, they weren't using PTO or vacation time. To help guard against the burnout that we could see coming later on if no one took off time in the summer, we encouraged employees to take their PTO and try and get maybe 50% of the PTO in between now and the end of summer. Hopefully that helps with burnout. I've taken a few Fridays off here in the last couple weeks and by the time Sunday comes around, I'm in a good spot. That forced time off has really helped manage any burnout that may be coming.

The last thing I might add is that we, once the governor gave the okay, opened up the offices again following all of the guidelines that were issued. For some people, that made a difference too because they just couldn't work as efficiently at home, or had a strong preference for an environment that is more structured like an office brings. We do have a good, I won't say a lot of employees, but a decent number have returned back to work and that has helped too. No longer are you on top of your family members literally 168 hours a week.

If you could summarize one or two of the main lessons you've learned here in a general way, whether it be from a business or from a personal perspective, what would they be?

[De Stefano] I mention in the article to expect the unexpected and be prepared to react. You're never going to be able to predict what that unexpected is, but you can get yourself in a state of mind that is ready and prepared to react. In times like this, you learn a lot about how people respond to the environment, in a higher-stress environment, and that's more than just an observation to take away. I think it's probably more of an example where we can help team members improve skill sets and experiences for the next time. There's no doubt that there will be a next time. I think you said that earlier on in one of the questions, that there's just ... it keeps happening. That experience becomes part of the base, so that maybe it's not as intimidating or stressful the next time we run into it. Are there other lessons? I go back to the cash flow. Take the time, if you haven't done it. I know that there are so many companies that are, but if you're an environment where you have some change-over within your finance department, or within your leadership, now's a great time to really immerse yourself into the ins and outs of cash of a business. It is the lifeblood of a business. If you're investing the time to understand how cash impacts your business at various times of the year, it'll help you build better projections and better models that are very useful in non-pandemic and quarantining times too. It's hard to predict cash three to six months out, but the more you work on it and the more you understand the details, that fuzzy nature that's beyond what is easy to predict, you start to get more comfortable in that zone. To me, that would be something I'd encourage anybody who's listening to this podcast in a role that is involved with cash management to truly invest some time into.