The evolving role of a CFO has become a recurring theme in finance circles. Still, there is no better phase than recent times that cements the value of agility and financial prudence.
Since 2020, we’ve seen a pandemic followed by a hopeful and strong recovery in 2021, only to be greeted by record-breaking inflation rates and a looming recession in 2022. Needless to say, the changing economic landscape has resulted in a rollercoaster ride for the financial markets. But businesses that have successfully thrived in such volatility are the ones that have been persistently obsessed with growth and constantly adapted to changing market conditions.
Increasingly helping these businesses navigate the unknowns and stay ahead of the curve are CFOs with a deep understanding of the business who, armed with the correct data, become the financial architects of their firm’s long-term success.
Despite grim predictions for 2023, CFOs are looking for ways to leverage the changing macroeconomic shifts, and the road ahead definitely looks challenging. Here are six things a CFO needs to do to help their companies stay ahead:
Stay agile to navigate strategy shifts
Since the term was coined, the “new normal” seems to keep evolving. In crisis mode, businesses turned to their CFOs to ensure liquidity amidst slowing growth and shrinking capital. As the pace of change accelerated, so did the expectations from CFOs. In an Accenture survey, 93% of CFOs agree the responsibility they’ve been entrusted with today feels much more significant than in the past.
Modern CFOs operate at a scale and pace different from their predecessors. So, as newly-minted agents of change, how can they equip themselves to chart the ever-turning tides?
Leverage cross-functional insights
Given their unique vantage point, CFOs can lend context and unify narratives, and leaders across functions make better investment decisions and evaluate the efficiency of initiatives. From a fiscal perspective, CFOs can help them rethink value measurement and identify areas where they can get the greatest return for their resources.
Foster the right talent
As the finance function takes on more responsibilities on the strategic front, finance leaders must redesign their teams to encourage upskilling and new mindsets. According to a 2021 PwC study, firms that invest heavily in upskilling have 27% lower turnover than organizations that do not invest as heavily. Moreover, upskilling employees translates to lower hiring costs and their consequent impact on productivity while you build an enviable team of professionals.
To lead strategy shifts, CFOs need a strapping team of professionals armed with skills that their new roles reward. So while bookkeeping and crunching numbers can’t be ignored, we also need prudent leaders and innovative storytellers who can shape the narratives of org-wide pivots and assess strategic acquisitions for long-term viability.
Run and re-invent
While adjusting for macroeconomic shifts, CFOs also need to double down on operational execution, experimenting with new initiatives, spearheading new business models, and maximizing profitability much faster.
Rented is a leading provider of Revenue Management as a Service (RMS) for property managers of vacation rentals. With properties listed across six continents, Rented reached lofty heights in early 2020 by bagging #61 on Inc’s Annual List of Top 5000 fastest-growing companies in the US.
When the vacation rental industry gasped for existence during the COVID lockdown, Karen Fleck (the CFO) and her team creatively leveraged Chargebee to retain 80% of their customers using a bespoke discounting strategy.
CFOs need to reimagine their organizations in extraordinary scenarios like the pandemic, foresee industry trends and innovate rapidly to stay ahead.
For instance, if you don’t have one already, you might consider offering a subscription model for your product or service. A subscription model offers revenue predictability, helps you reach new segments by lowering the barrier to entry, and can help you build a base of loyal customers who bring in recurring revenue.
This is also an apt time to experiment with value-based pricing models. People’s willingness to pay (or continue to pay) for your product will always be a function of their perceived value. So instead of slashing prices or offering discounts, usage-based pricing or transparent pricing tiers could strengthen the relationship with your existing customers and increase your brand’s trustworthiness.
Accelerate digital transformation
The covid-19 pandemic has inarguably accelerated tech adoption. As automation technologies mature and their benefits become more apparent, CFOs must recognize the tactical insights and operational efficiency that digital transformation brings.
According to a 2021 report, 60% of traditional finance tasks are now automated, up from 34% in 2018. The pandemic-fueled round of digital investments has gained a new speed in light of the looming recession. Ask any of our customers if automated billing made a difference in their lives, and they’ll tell you: once you automate, you never return.
Gartner says 78% of CFOs will increase or maintain enterprise digital investments through 2023, even if inflation persists. As businesses struggle to stay cash flow positive, every penny saved by lowering the cost of doing business or every delta increase in profitability - makes a difference.
Let your business take an “active rest day”
Olympic athletes often take an active rest day to work on muscles they don’t use in their formal training. The downtime allows their core muscles to rest and recover while engaging other body parts. Likewise, during a macro slowdown, businesses can also exercise the muscles they don’t get to use as often.
With reduced budgets and reduced demand, this might be the time to revisit some initiatives that were previously bumped off the priority list. What activities can build the foundation for success three years from now? Is it cheaper to upgrade your tech stack now? Can you break down function silos and optimize operational efficiency across the organization? Should you build a robust knowledge-sharing framework that will boost cross-functional collaborations? What kind of low-risk experiments can you run in this financial climate?
Capitalize on retention for sustainable growth
During good times, businesses obsess and splurge on customer acquisition, rightly so when you’re chasing ambitious top-line growth. But retention is the silent engine that keeps your show running in tough times.
While everyone goes on cost-cutting sprees and it becomes increasingly harder to acquire new customers, the importance of effectively showcasing your value proposition and retaining existing customers becomes glaringly apparent. For example, building an intelligent churn deflection funnel and offering personalized cancel experiences can help you understand why customers churn. Then, businesses can use these insights in real-time to make compelling offers that can get them to stay.
Plug revenue leakages to extend your cash runway
Even the most phenomenal unit economics or a groundbreaking product can’t guarantee the existence of your business if you run out of cash. However, during an economic slowdown, cash flow often determines which companies make it and which don’t; it’s the survival of the thriftiest.
According to the OpenView 2022 SaaS benchmarks report, companies with less than one year of runway are cutting the same amount as companies with 25+ months of runway. So as businesses gear up for current conditions to continue or worsen, unsurprisingly, maximizing cash flow will be a key driver in 2023 planning for all companies.
While the go-to solution is to tighten your purse strings, it could also be beneficial to take a close hard look at your receivables management. Revenue leakages in your billing process - either due to faulty automation or manual errors - could be an untapped source of revenue that remains to be discovered.
An intelligent dunning system can tackle payment failures and involuntary churn. In addition, investing in an integrated billing plus receivables system that can automate your entire AR workflow can reduce collection costs, improve the end-user experience and get you paid faster.
Leverage data forecasting to identify growth opportunities
A significant part of finance tech is still primarily used to improve process efficiency and the accuracy of historical reporting. However, CFOs leveraging data discerningly can glean impactful insights beyond business metrics. You don’t need more data; you need data from the right perspective.
AXSemantics, an automated content generation tool, considered LTV a significant driver for their growth. However, the team was perplexed when they found that the value they derived from customers with similar profiles could vary by almost 100%. When they dug deep into Chargebee’s RevenueStory, they identified that the difference came from the sales executives and customer success managers handling these accounts.
They identified what worked best and were able to align their customer-facing team with emulating these best practices.
Research by PwC revealed 90% of all companies are looking to improve decision-making through digitization initiatives, with CFOs spending 18.5% of their time working on these projects. Robust data tools can provide CFOs with holistic visibility into their organization’s financial health, enable them to take a forward-looking and insight-driven approach to decision-making, and give them a technological edge over their peers.
As businesses rush to prepare for the impending recession, there is mounting pressure to adopt intelligent technology that can automate efficiency troubles away, proactively identify patterns in business metrics, and guide and optimize contingency plans.
While the trend towards digital transformation might seem inevitable, in the light of an economic slowdown, finance leaders who champion change and digital transformation proactively can capitalize on its benefits and will be ideally positioned to win the race to the future.