Economic conditions in the UK in recent times have been challenging to say the least. There have been a range of interconnected factors over many years leading up to this, including Brexit, the pandemic, and the war in Ukraine.
Brexit made it more complex to move goods across borders, ultimately leading to more fragile and expensive supply chains. The pandemic caused many businesses to close their doors permanently, while forcing the government to divert infrastructural spend to more pressing matters. And the war in Ukraine has led to higher energy costs due to the political situation in Europe.
With the cost of utilities and raw materials being higher, many companies will inevitably pass these increased costs onto customers in the form of higher prices. When this type of inflation occurs, it essentially degrades the value of money, leading to lower purchasing power for consumers.
If wages don’t match this inflation, this is what leads to a cost-of-living crisis. Central banks have drastically increased interest rates too, leading to less borrowing. This reduces economic activity even further and lowers the demand for goods and services, creating a somewhat vicious cycle.
What role can the CFO play during economic uncertainty?
Times of economic instability can be extremely unsettling for businesses, as the future is far less predictable than it would normally be. Strategic growth plans may be scrapped during such times, as survival becomes the main priority. When trading within a volatile market, fluctuations can be severe, meaning there is less consistency around monthly operations too.
When the going gets tough, organisations are under increased pressure to improve their financial picture, and a large portion of this burden falls to the CFO and their finance/procurement team. They must be proactive and put measures in place to protect their business going forward.
A strong CFO is needed during a crisis in order to breed confidence within their department and wider company. They sit in a key strategic position as the primary advisor to the CEO, having a big influence on high-level business decisions. They also oversee financial performance reports, ensuring this data is communicated to the board of directors, and driving actions that address the associated challenges.
The CFO’s responsibility extends to financial compliance too, identifying strengths, weaknesses, opportunities, and threats within the regulatory landscape. Due to their relationship with the CEO and the rest of the C-Suite, they have the unique ability to unite and shape other departments with the transformative insights they share. On top of this, they must ensure spend is kept under control, cash is being collected in a timely manner, and investments are in the right places. However, these daily obligations must be completed with extra vigilance and urgency when economic conditions are unfavourable.
What has our CFO had to say on the matter?
Stephen Dews joined OneAdvanced as Chief Financial Officer back in February 2023, tasked with leading the company’s strategic and operational finance initiatives. He has many years’ experience leading finance teams in the IT sector (both within public and private organisations). In the technology space, he has held the positions of EMEA Finance Director at Oracle, Group Financial Controller at UNIT4, and more recently CFO at Keylane.
We sat down with Stephen to talk about the economic climate, its associated challenges, and how to successfully navigate these stormy conditions. Here’s what he had to say:
Q. Why is the CFO’s role even more important when businesses are facing challenging economic conditions?
A. “The CFO plays a central role in risk management, cost control, financial planning, and forecasting, which are all imperative during an economic crisis. As the financial steward of our respective companies, CFOs have a crucial responsibility to inform stakeholders, while also using our expertise in financial analysis to implement long-term strategies that are sustainable.
Cash is the most important point on a CFO's radar, but even more so when interest rates are higher. We must ensure our data/forecasts are accurate if we’re to have a grip on cash inflows and outflows. Investment decisions, business cases, and working capital management also gain increased significance in such an economic climate.”
Q. What can CFOs do to thrive during these times?
A. “CFOs should ensure the financial policies and processes within their organisation are clearly defined. This helps to maintain as much control as possible at a time that is inherently unstable. As I touched upon, it’s essential they develop a deep understanding of the cash flow situation if they are to successfully steer their company through turbulence.
Attention to detail is key when sifting through financial data and identifying potential risks/cost-cutting opportunities. Additionally, I’d suggest prioritising investments that are aligned to core organisational objectives, while not being afraid to embrace innovative methods that serve to diversify income streams. This gives businesses the best chance of achieving their growth ambitions while remaining resilient.”
Q. How do you think CFOs can better manage their business spend?
A. “It’s crucial to manage costs in the right ways, because some cost-cutting can be detrimental, if, for example, it negatively impacts the quality of your products or customer/employee outcomes. View the crisis as an opportunity to root out unnecessary spend and inefficiencies. If there are steps within your operation or processes that aren’t needed, this is where you can streamline.
Don’t neglect your talent or tech stack though, as these are your greatest assets when it comes to finding intelligent spend management strategies. Procurement is an area in which big savings can be found, such as negotiating better terms with suppliers, making your supply chain more localised, or identifying materials that regularly go to waste due to overstocking.”
Q. Data is an essential pillar of finance. Just how important is data integrity in all of this?
A. “I don’t think it’s an overstatement to say data is everything in finance. Data forms the backbone of all financial decision-making. But these decisions will be completely misguided if the data you’re using lacks integrity, quality, and accuracy. Decisions carry even more weight when money is tight, so businesses must give themselves the best possible chance of succeeding.
They should invest in their data quality, putting measures in place to ensure data is captured, stored, and monitored effectively. It’s important to regularly review your financial dataset, ironing out any duplications, filling any gaps, and making sure the right employees have access to a single, unified version of the truth. Once finance teams are assured of their data’s integrity, their reporting, risk management, forecasting, planning, regulatory compliance, and customer relationships will be greatly improved.”
Q. As you’ve mentioned, reporting and forecasting are integral tasks. How do you best present this information, as well as your recommendations, to the board and CEO?
A. “It’s crucial your main points are supported by data. And even more importantly, it must be data that stakeholders trust. Financial data can often be complex by nature, so it’s also beneficial to turn this into something that is more comprehensible. Visual aids can be a good method for making key insights more readily apparent.
Many accounting software solutions today have built-in reports and dashboards, so that top-level performance metrics can be demonstrated with ease. If you’re able to link this performance data to business outcomes and drivers, this makes for an even more compelling presentation. And with regards to putting my recommendations across, I find that collaborative dialogue is a helpful method, as it creates a sense of inclusivity when inviting others to discuss the implications of your findings.”
Q. Having the right technology in place can undoubtedly help with everything we’ve discussed. How do you weigh up the cost of digital transformation against the simultaneous need to reduce costs?
A. “For me, it’s a no-brainer. It may seem counterintuitive to spend at a time when you’re looking to scale back. But some investments represent an unmissable opportunity to boost efficiency. When using the right innovations, you’re far more likely to increase profitability due to the associated productivity gains. In terms of technology adoption, inaction often proves to be more expensive in the long run. There’s also the risk of getting left behind by competitors. If you’re the only business in your field without a particular operational capability, are you likely to be the top choice for prospective customers and partners?
However, CFOs should of course do their due diligence by analysing the cost effectiveness of the system in question. Many software providers will give you access to an ROI (return on investment) calculator, so this is a good place to start. And be sure to select a provider that is in sync with your values, as there’s a good chance they’ll be your technology partner for a sustained period of time.”
Q. Are there any other tips you want to offer to CFOs?
A. “Firstly, I’d say never lose sight of the customer. Keep their needs at the forefront of your decision-making process, and ensure your strategies have their best interests at heart. Identify areas where efficiencies can be improved, but not at the expense of customers or other key stakeholders. Do this by optimising processes and maximising resources, but, again, don’t lose sight of the business’s long-term viability when reviewing costs.
Also, be sure to leverage advanced tools to enhance the forecasting and scenario planning capabilities of your finance team, as this will make them more agile. And implement a bottom-up/collaborative approach to budgeting, as this fosters a deeper understanding of resource requirements. Lastly, communicate updates to the wider team in a compelling and competent manner, as you ultimately have the authority to breed confidence in others.”
End of Q&A.
If you’re looking for more guidance on how to safeguard your business’s future amidst financial uncertainty, download our latest e-book, ‘Navigating turbulent economic times: A CFO’s perspective’, which provides actionable tips for finance and procurement teams.