Newsletter.
August 2023
Top 4 Strategies for CFOs to Prepare for an Economic Downturn
The US economy may be heading into a mild recession later this year. As a CFO, your company leadership and staff will be relying on you to guide the business through the choppy waters of an economic downturn. You may be considering what strategies to pursue: aggressive cost-cutting and layoffs or expansion and acquisition before the cost of capital increases.
A Harvard Business School study found that a multi-pronged approach which focused on reducing costs, increasing operational efficiency, and selective spending was the best mix for a company to get safely through a downturn while staying competitive and profitable. A combination of these “offense and defense” strategies helped companies emerge from a downturn ready to take advantage of a recovering market and renewed consumer optimism.
Here are 4 top strategies that CFOs can use to prepare for an economic downturn:
Forecast and Plan
First, use predictive analytics and data management to create possible financial scenarios. This can identify your company’s greatest potential risks, opportunities, strengths, and weaknesses. Create action plans for a range of possible outcomes. Use real-time financial monitoring to adjust forecasts and scenarios.
Evaluate your customers and industry to consider how they may be impacted by an economic downturn. What might be the impact to your company as a result? Is your business prepared for this impact?
Optimize Cost Efficiency
Next, calculate and rank the ROI of your outgoing business expenses, such as rent, payroll, or marketing. Can you eliminate, lower, or renegotiate any expenses? Can you outsource non-essential jobs or functions? Cost containment is critical in an economic downturn, particularly if cash flow is affected. Strengthen financial controls to reduce waste and fraud, while improving operational efficiency.
Improve Cash and Liquidity
Maintain access to additional working capital by increasing business lines of credit before they’re needed and building solid relationships with lenders before you need a loan. Improve your company cash flow by negotiating with vendors for better terms and offering discounts to customers for early payment. Determine the most impactful customers and products so you can optimize inventory and pricing to improve cash flow.
Consider divesting non-essential assets, postponing capital projects or paying off debts early. You may want to have emergency funds or a savings account for the business. Consider developing new markets or investing in new assets, such as equipment, which could increase productivity and improve cash flow. New business opportunities can be created through investment in R&D or marketing!
Provide Strong Financial Leadership Across Your Business
Management, employees, and other stakeholders will be looking to you for financial leadership during a downturn. Your best strategy is to be transparent and communicate regularly across all areas of the business about the company’s plans and financial situation as is appropriate. Effective communication will create a working environment of trust and collaboration, as well as boost employee morale during difficult times.
As a CFO, your strategic planning will set the course of success.
If you’re a financial leader or business owner with planning concerns about an economic downturn, the Funding Strategies Conference can help. Join our webinar Thursday, September 7th titled, Major Changes to SBA Financing: What You Need to Know. This is part of our continuing online educational series to help business owners learn smart funding strategies and how to avoid costly lending mistakes. Use code FINANCE23 for Early Bird discount! A $29.99 Savings!
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Sources:
Anaplan: Rising Above a Recession: https://bit.ly/3DrAqgA
CFO Connect: Bear Market Strategies: https://bit.ly/3KaBj0W
CFO University: How to Prepare for an Economic Downturn: https://bit.ly/3K9NQ4u
Deloitte: What Should CFOs Prepare for Now?: https://bit.ly/3DoFxOD
Finance Alliance: How to Prepare for a Financial Crisis: https://bit.ly/3rDfgJI
Harvard Business Review: Roaring out of a Recession: https://bit.ly/43CNtpV
Spends: Recession Readiness: https://bit.ly/473l3bO
The Ever-Evolving Role of Financial Leadership
Traditionally a CFO is an executive level position, holding responsibility for financial planning and forecasting, while managing the finance and accounting divisions of a company.
Company accountants are generally responsible for financial tasks such as bookkeeping and taxes. The Bureau of Labor Statistics estimates that more than 300,000 accountants and auditors in the US have left their jobs in the past two years and many aren’t being replaced. Companies are facing a real shortage of finance professionals, which means finding dynamic financial leadership or technological solutions will become even more mission critical.
CFOs are already beginning to incorporate more accounting and auditing functions into their daily routine. They are increasingly becoming experts in everything related to corporate finance. Technology is at the forefront of CFO support, streamlining and automating accounting through enhanced software and very soon, AI. Bookkeeping and general ledger management through automated technology allows these back-office operations to be maintained accurately with far less time and effort. This allows CFOs to stay strategic while managing the financials.
Having a more “hands-on” role can be an advantage as CFOs gain a deeper understanding of their company’s financial data and real-time financial position. This greater insight can guide a CFO to drive strategies that are better aligned with a business’s financial reality, including R&D, funding, and M&A.
Be sure to tune in to The Funding University’s monthly podcast hosted by Seth Block. Seth is the founder of The Funding University and the Executive VP of ThermoCredit, an alternative lender funding the communications and technology sectors since 2002. Seth and his guests discuss current trends in finance, lending, the economy, and the impacts on a small business. Click here to listen: www.thefundinguniversity.com/podcast
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Sources:
Business Insider: 8 Common Degrees Among Top Earning CFOs: https://bit.ly/477uV4o
Indeed Singapore: Career Advice for CFOs: https://bit.ly/44InEq3
Spendesk: The Path to CFO: https://bit.ly/43JHWy6
Toptal: 6 Skills CFOs Need Now to Help Companies Grow: https://bit.ly/43Q7PfO
WSJ: Why Accountants Are Quitting: https://bit.ly/3OuyUAz
