illustration of your CFO can drive growth and manage budgets with rising costs of recession

7th December 2022

How Can Your CFO Tactfully Drive Growth & Manage Budgets Amid Rising Costs Of The Recession?

Steve Hill

Welcome to instalment 3 of our Manager Challenges Series.

We’ve been pondering the unique challenges that an impending recession could bring to different heads of department.

If you’re just joining us for the first time, be sure to check out the first two posts for helpful tips on how your business can overcome the struggles of a recession.

Our first episode was all about heads of HR attracting talent and keeping staff happy while the recession makes pay rises difficult.

Last time, we looked at how CTOs could still successfully invest in tech during a recession, while also supporting the business as a whole to choose projects wisely.

Today, we’re thinking about the CFOs out there, who will perhaps be most tangibly aware of the negative consequences that recession could bring to their company.illustration of CFO driving growth and business

We’re going to be analysing which approaches can make it easier for CFOs who want to still drive growth and manage budgets carefully, even as costs rise in response to recession.

What Is The Role Played By A CFO In Times Of Crisis?

The twin phenomena of repeated crises of the economy and developments in tech have changed a CFO’s role considerably over recent years.

It’s been some time since the CFO was seen as just a role of numerical analysis. While this task is still essential, it is merely one of many skills that are now required to be a truly effective CFO.

Technological advancements have engendered software that allows financial forecasting and granular analysis of financial data. These were previously the job of the CFO to do manually.

The result of these tech improvements has been that the CFO has become something more. Not only must they interpret the software’s data and present it to CEOs and board of directors, but also, they are frequently put upon to:

  • Prepare the organisation for crisis
  • Future project planning
  • Analyse and determine the entire business architecture
  • Ensure flexibility at every levelCFO planning for the future

The level of strategic business planning involved in being a CFO has ballooned and so it is little wonder that CFOs are more and more frequently later promoted to CEOs. The value added by CFOs and the knowledge required to do the role well is certainly being recognised.

Unlike accounting, which is fundamentally about the past, finance is focused on planning for the future and that is why CFOs face some of the biggest challenges in a recession. Planning for the future is always going to be hard in economic turbulence. It’s not just the budget squeezing that is the problem, but the uncertainty too.

What Is High On A CFO’s Agenda In A Recession?

Cutting costs, balanced with stimulating and maintaining growth are the top concerns of most CFOs in a recession.

Interestingly, across the pond, although CFOs are clearly bracing for a recession, nearly 73% of those surveyed are more concerned about persistent inflation. Only 27% are more worried about a recession.

Spiralling costs are placing the biggest pressure on all decision makers in business and CFOs are often seen as the guiding rudder in the best course of managing the situation. Economic growth has slowed, interest rates are rising, and inflation rates are at highs not seen for around 41 years. Before the recession, CFOs were already having to try new strategies in response to the business changes brought about by the pandemic. It is, therefore, by no means an easy time for CFOs. Their roles have evolved quickly, and they have been in unchartered territory with the pandemic.

In some ways, a recession is more familiar ground, even if it is challenging because CFOs can look to previous recessions and use this data in their forecasting and planning. Already most CFOs have placed a big focus on cutting costs with 97% cutting costs by more than 10% per annum.

So, we know the tests that CFOs are currently facing, but how can the best CFOs succeed in cutting these costs while still driving growth for their companies?

H2: What Tactics Should A CFO Use To Manage Budgets Carefully While Still Encouraging Growth?

Invest In The Right Tech

71% of CFOs indicated that greater use of technology helped streamline their work which created multiple benefits throughout the company as a whole.

Investing in tech for the company as a whole can increase automation and cut down on the cost of manual processes. Tech that focuses on customer insights can yield smarter data and help unlock profits. Specific finance tech can help you as CFO with improved forecasting and analysis for the best recession planning.

It’s all just another great reason for CFOs and CTOs to put their heads together and work closely through this difficult period.

Embrace Remote Work and WFHillustration of happy worker working from home

WFH saves money on office space, heating, and even salaries as workers do less commuting and save money. 82% of CFOs agree it is a more affordable business model.

Improve Cashflow and Liquidity

This is always important but it is even more so when heading into a recession.

Do you know your working-capital requirement to ride out the recession?

It might be worthwhile increasing your line of credit and access to other funding options in anticipation of increased costs.

You can also diversify your revenue streams. Talk to all department heads and consider if there are any missed opportunities for attracting revenue in different ways.

Some examples are:

  • Partnerships with other companies are always an interesting choice.
  • Creating more paid for educational materials around your given niche e.g., whitepapers and workshops.
  • Affiliate marketing
  • Adding a subscription service for customers
  • Buying other existing, relevant businesses.

Just be careful not to overstretch or try too many experimental and untested options at once.

As well as offering subscriptions, using subscriptions for the services and products that your company requires can be an advantage for cashflow. Subscriptions spread costs into smaller amounts compared to buying and you can cancel subscriptions if you no longer require them.

Assess Your Receivables And Identify Risky Customers

The best way to limit costs and drive profit and sure-up the business for a recession is to reduce accounts receivable and increase accounts payable.

You can do this by delaying when you pay suppliers. Try to negotiate with them or pay as late as your contract allows without incurring fines.

Conversely, try to insist that your customers pay you as quickly as possible.

While it may seem hypocritical this will be the best way to perform well financially in the recession. When carried out successfully, it will minimize revenues lost to inflation and expenses paid to suppliers and contractors. Just try not to alienate loyal suppliers in the process. This is why being a good third-party negotiator is yet another new skill required of CFOs.

Be proactive in chasing customer payments. Meanwhile, analyse their behaviours to see patterns in who are the most unreliable payers or frequent late payers. Knowledge is power and you can use this knowledge to focus in on problem payers and motivate them, for example with discounts for paying early. While offering discounts might seem counter intuitive, remember we are looking to sure-up steady reliable cashflow most of all, so whatever gets the customer paying on time, more reliably, is better.collecting customer payments

Try to show that you understand the customer’s situation and foster great relationships to keep them loyal.

Analyse Your Risk

It is a simple fact that some industries are at greater risk in a recession. Everyone will struggle with rising costs, but people don’t stop buying essentials like food and energy. Luxuries like travel, dining, etc. are often hardest hit as people cut back on spending to stretch what is in their own pockets further. Vulnerable industries will need more aggressive profit driving and cost cutting tactics.

Inventory Review

If your company deals in any type of physical products or merchandise, you need to review your stock at the start of recession. Holding too much stock or too little is a problem in recession. You must meet demand and not disappoint customers when you need every sale you can muster but holding too much inventory is bad for cashflow.

Communicate with other departments

This might be the single most important advice to CFOs. It’s over-looked as well. In our other Manager Challenges Series instalments, we have repeatedly talked about the value of other departments working closely with the finance department and the CFO.

Well, the value of clear communication and collaboration through departments cannot be overstated. The CFO needs to lead by example.

It’s not just about reviewing other departments’ projects or goals, but about really educating each department head on the financial situation and the various forecasts and scenario plans for a recession.

If they can get on board with these goals and fully understand the situation, they can better work with you to maximise profits while minimising costs.

Certain department heads, for example, your CTO, might have insight into money saving initiatives that you haven’t, but you need to analyse how realistic the short-term gains are in a recession.

It’s a sad fact that recession might mean cutting personnel in certain departments, so you need to work with those department heads to evaluate people’s skills and value to the company.

Review Your Capital Structureillustration of capital structure

What debts does the company owe and do you have a repayment due over the next year – 18 months? A recession could last at least that long. Consider if costs rise and customers are spending less, would a more pessimistic forecast still enable you to pay that debt with current plans in place? Refinancing before the situation is imminent is a smart idea.

Re-evaluate The Current Portfolio

Consider whether you can scale back or simplify your offering to clients while still being appealing. Can you offer fewer services but ensure that what you do offer is done very well and efficiently for clients? It’s time to streamline.

Re-evaluate All Current Business Projects ASAP

Look at all current and planned projects and initiatives in every department. Which will most likely yield the biggest profits in the short-term and which are money pits that can be axed, or at least postponed?

Use Forecasting And Create Multiple Scenario Plans

With the right forecasting tech at your fingertips and the right skills from a CFO, there should be multiple plans in place for various scenarios. You do not know exactly how the recession will unfold and, therefore, there should be backup plans and multiple projections, so that the business can easily pivot between them as circumstances change.

Cultivate More Short-term Funding

Go back to the bank and use a change in strategies. You could opt for approaching multiple banks for loans, which would then compete to offer best credit and short-term funding. Some instead find value in approaching fewer banks but fostering stronger partnerships with providers who clearly understand your needs and risks. These partnerships can sometimes be hard to develop though.

Cut Travel Expenditures By Cutting Down Unnecessary Travel

Travel for business has rebounded since the pandemic but consider is that business trip necessary. Can the same or similar outcomes be achieved with online communications and presentations? You’ll be doing the environment a favour as well.

Outsourceillustration of outsourcing

Outsourcing is often cheaper than having certain services and departments in house. It requires less infrastructure and less full salaries. Using freelancers and outsourcing things like data storage, marketing, network hosting, etc. can save a lot of overheads.

Raise Prices For New Customers

It is a competitive market but with inflation rates, the cost of everything will rise and customers will expect it. You need to ensure that you are still encouraging profit and maintaining good cashflow. In a competitive marketplace, you can win by keeping prices steady for existing customers to discourage them from leaving.

Act Quickly

Whatever your chosen tactic might end up being, you should enact it quickly.

Looking back to what history has taught us, the most resilient companies during the 2008 recession were the fast reactors. Those that chose to make radical changes earliest faired the best and lost the least revenue. Aim to reduce operational costs early in the recession and build flexibility into your plans.

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