CFO Guide to Navigating Uncertain Times
Times are unstable; we’ve heard that one before. With a new round of instability making its way into the business world, organizations are once again scrambling to find ways to navigate the obstacles.
This time it’s not a global pandemic and government restrictions, nor is it the supply chain issues and inflation that followed. Rather, it’s a recession of which nobody knows how long it will last or what the damage will be. In addition, inflation is barely subsiding, supply chain issues are still very much a problem, and labor shortages persist. To top it all off, the Russia/ Ukraine war is still ongoing, while the pandemic is still threatening certain industries in the global economy.
To put it simply, the global market is very uncertain, and this makes the tough job of being a CFO that much tougher. While the market is unstable across the board, companies backed by private investors are in the spotlight, and those that are technology based have been hit the hardest.
Introduction to navigating unstable times
While the obvious answer could be to predict, analyze, and forecast as much as possible, this can’t be the end-all solution. CFOs already lead the forecasting efforts, especially in the past few years when they have taken a more central stage in forecasting, and doing this is nothing new. The biggest problem is that there are so many factors involved that forecasting in unstable times with so many variables has a huge amount of limitations.
In addition, executives want a concrete plan of what to do, not just estimates. A CFO’s time and resources are limited and time is of the essence. Let’s take a look at 3 things that CFOs should prioritize in today’s unstable times:
1) Stay on top of demand
It is impossible to constantly forecast all relevant numbers, but constantly updating demand forecasts is a must if CFOs are going to steer their company through this uncertainty. Demand is what leads all of the business aspects and if it’s significantly altered, then all of the organizations’ numbers will be off the mark.
During times of uncertainty, people’s spending habits can change overnight, and even the talk of a recession could be enough to drive people away. Depending on whether it’s a product or service, a luxury or necessity, or whether it’s B2B or B2C will all shape consumer’s spending habits and require CFOs to review demand weekly or even daily in some cases. Part of forecasting demand is looking at the worst case scenarios, and ensuring that the company has a plan for it all.
As with most aspects of CFOs steering their company through instability, technology is the answer to staying on top of demand. Digital predictive analytic tools, business visualization applications, and what-if scenario planning are just a few examples of tools that improve management’s understanding of business drivers and their impacts.
2) Lead Changes in the Organization
After rethinking how demand affects the company’s revenue and ensuring that the company will be OK even in a worst case scenario, CFOs should lead necessary changes throughout the organization.
The first step is within the finance team itself. One way to do this is to prepare for future turbulence by investing in FP&A automation and predictive scenarios that will help finance teams be more efficient on a day to day basis, and more prepared for big changes.
The next step is within the organization as a whole. CFOs need to find out what each department needs in order to navigate through these messy times and help them wherever possible. While more funding isn’t always an option during an economic downturn, other needs such as investing in people, increased collaboration, or being the bridge between different departments and the C-suite can always be improved independent of funding. Working on these things will not only help the organization navigate the current uncertainty but will also help growth and future bumps in the road as well.
3) Find and seize opportunities
Unfortunately this isn’t the first bout of instability in the past few years, and on the flip side it has made CFOs hardened veterans of navigating uncertainty. While in the case of Covid-19, most CFOs and companies froze up at the beginning, this should occur much less now as the pandemic has made companies far more agile.
As we have seen in the past few years, during times of uncertainty and seemingly bad economic times, there are always ways to thrive and set the company up for success. But in order to do this, the biggest difference in CFO strategy is relying far more on short term forecasts instead of long term ones. Long term forecasts don’t mean much in this case, while short term forecasts have a much bigger impact and chance of being correct.
However, that doesn’t mean that ignoring the long term completely is the right answer. Companies that are able to predict long term trends based on the current instability are ones that are able to provide sustainable long term growth.
An example of this are companies who realized that pandemic trends such as working from home and flexibility are here to stay, and therefore invested in these as long term solutions instead of temporary trends. Today, they are seen as visionaries, while in the first weeks of the pandemic they received a lot of criticism for investing huge sums of money on a solution that might be temporary or might not work.
If there’s one thing the pandemic has taught us it's agility. During other times in history, the uncertainty of today may have sent companies into panic mode, but most organizations are remaining calm and collected. CFOs who have the ability to notice and quickly seize opportunities will not only get their company through this, but will also put them ahead of competition. However, it’s important not to get too risky and overconfident, and maintaining structural strengths such as a solid balance sheet will minimize risk.