CFO management strategies in a challenging economy

 

The gloomy economic forecasts for 2023 have placed CFOs in an unfamiliar environment that requires proper planning and action.

 

At the beginning of this year, the Federal Reserve’s benchmark interest rate was at its highest level since the start of 2008. And while the cost of capital is soaring, a huge demand for workers with various skills has caused all-important human capital expenditures to skyrocket for many organizations.

 

After meeting the many challenges presented at the start of the COVID-19 pandemic, CFOs again need to lead the way with smart planning decisions that minimize damage and drive growth in difficult times. Here are five tips from Dan Kinsfogel, a national advisor in Grant Thornton LLP’s Finance Transformation practice, on how finance leaders can succeed in the current environment.

 

Stay focused on strategy. Finance leaders should continue to focus on the most pressing priorities that support the business strategy. Often during times of uncertainty, leadership makes the mistake of tightening the purse strings on innovation and delays executing its strategic initiatives.

 

It’s better to continue to push forward with the right level of acceleration while remaining diligent to mitigate risk. This can position the organization for the long-term success required to stay ahead or push ahead of the competition. Times of distress can provide great opportunities for CFOs to differentiate their businesses both internally and in the marketplace. This is an important time to consider reallocation of resources to ensure investments are going to the right places.

 

Not everyone loses in an economic downturn. CFOs can move forward by aligning investments directly to the strategic plan while identifying and challenging the need to pursue less critical activities. In difficult times, prioritization of initiatives takes on added importance as the acceleration of benefits comes into heightened focus.

 

Remember that “fewer is better.” CFOs can focus on essential activities with a “fewer is better” mindset. At a time such as this, there is less need for focus in areas that do not have a clear impact on the achievement of strategic objectives.

 

For example, organizations may wish to reduce or eliminate services or products that do not drive sales or profitability while shifting those resources to further invest in making the more brand-defining offerings better. Identify the most important products or services that customers demand and those that are most accretive to bottom-line value and further elevate them with an eye toward both near-term and long-term profitability. This is an ideal time to reset the portfolio of offerings and place your bets on products and services that will push you forward. 

 

Elevate FP&A and cash forecasting. Before 2020, processes related to financial planning and analysis (FP&A) and cash forecasting were considered more of an optional, “nice-to-have” attribute for many organizations. Now, these processes are essential.

 

The uncertainty and rapid changes inherent in the current environment have driven the need for faster organizational decision-making enabled by efficient financial planning processes. Leadership needs to be able to focus on scenario planning and prioritization of investments so that the business is always looking forward and adjusting quickly as the variables change.

 

Given rising costs of capital, organizations need to better understand how and when cash is received and used. A short-term cash forecasting process can help an organization become more nimble if cash positions tighten as a result of shifts in consumer demand, supply chain lags, or other emerging threats.

 

Involving leadership more in cash discussions and building more of a “culture of cash” mindset allows for more open discussions on cash positions and needs. Having these processes in place in advance of challenging times makes it easier to navigate through these periods.

 

Prepare for a rainy day. This is something CFOs should do regularly to better prepare them for a time such as this. CFOs need to be proactive in identifying cost savings opportunities for “rainy day” scenarios. Many Grant Thornton clients create what’s known as a cost adjustment checklist with no immediate need to act on it in fruitful times. This checklist is always top of mind for leading executives and presents near-term ability to pivot as business demands require.

 

When it is time to act, they are better prepared to follow through with the cost adjustments they need to implement. Those that have not gone through this important exercise may be reactive during economic downturns and make abrupt or short-sighted decisions that can have lasting impacts on their culture and business.

 

Gather support and momentum. Regardless of what planning strategies an organization and its CFO pursue, it’s important to make the exercise collaborative and gain the support of the rest of the leadership team and other critical stakeholders.

 

Success requires alignment with the people who execute these plans to ensure the organization is moving forward together. The CFO can facilitate these strategic and operational discussions to gain this important alignment.

 

Finally, change requires organizational communication. The ability to articulate the benefits that will be achieved during targeted investment and cost adjustment periods helps leadership maintain the confidence and trust of its employees. Bring them along and don’t make them guess as their understanding is critical to execute against shifting plans.  

 
 
 

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