With 2023 underway, and a forecasted recession looming, CFOs must move from having control over their costs to establishing absolute cost control by actioning any measures necessary. The stakes have never felt higher, and for many finance leaders, this is the first time they’ve been tasked with leading through that could threaten both business profitability and survival.
On February 15, 2023, The CFO hosted a group of senior finance leaders to discuss this topic in a virtual roundtable that was led by Sarah Watson, Director of Finance and Technology, Make-A-Wish foundation, supported by Robbie Hadfield, Solution Engineer at Payhawk, and ex-finance manager.
The group explored how to drive better, more data-based decisions around company spend to position themselves as business growth enablers, and away from back-office finance admin. The session was conducted under Chatham House rules so while this write-up will highlight key discussion points and takeaways, all participants are anonymised.
Challenges getting cost control measures to stick
Watson, the roundtable moderator, opened the discussion by asking the attendees what challenges they were facing in getting their cost control measures to stick. The group shared that they’re challenged with the following:
- The need to balance cost control with sustainable growth.
- Partnering with other business functions to develop an accountability strategy.
- Creating a control framework that governs systems across different countries or business divisions.
- Conveying financial information to non-finance stakeholders.
Hadfield shared his experience with the delegation of authority in getting cost controls to stick in other businesses he’s worked at and suggested that technology can support in fostering a cost-control centric culture. He shared how tools such as Xero, and NetSuite, can help delegate accountability to non-finance stakeholders. One participant agreed with Hadfield’s point and emphasised that it is essential to have the right tool in place. If the wrong tools are used, they can undermine the efforts of the stakeholders to have better control, visibility, and transparency around their budgets and broader business-related decisions.
Establishing a cost-control culture
The discussion moved on to data and analytics, with Hadfield sharing his insights on how ERP systems can sometimes make data meaningless for non-finance personnel. To solve this issue, he suggested providing unfiltered access to source systems in real-time to allow business partners to see the real cost without needing to understand complex accounting concepts. The utilisation of tools that allow financial professionals to convey financial information to non-financial stakeholders enables business counterparts to own their budgets and decisions, allowing cost control to not only become embedded into an organisation but valued as a strategic priority.
The group discussed and agreed on the benefit of having the long-term vision to centralise all forms of spend management into one platform, including card and expense management, AP purchase orders, and more.
Communicating with colleagues outside of finance
One participant, who works for a large US multinational, emphasised the importance of communication in bridging the gap between finance and non-finance professionals when getting cost control measures to stick. The participant noted that concepts like revenue recognition can be complex, especially given the differences in GAAP and accounting principles across countries. As a result, the participant stressed that finance professionals need to communicate financial concepts with their business counterparts. This participant shared the example that if a senior colleague is working on a big commercial deal, finance should support them in structuring the deal, to ensure the business benefits, risk is reduced, and to balance cost control with sustainable growth.
Purchase order systems
Purchase order systems were raised by the group, specifically around the lack of interest in implementing them, but also the potential benefits of having one for a business. One participant shared that because they don’t have a PO system, they’re consistently receiving unexpected invoices, which leads to unnecessary time and effort in paying them. This individual then explained that the resistance is coming from employees who have had negative experiences with purchase order systems in the past, leading to a lack of interest in implementing one in the present. Hadfield explained at this point how businesses sometimes use purchase order systems inappropriately, in that they’re ‘trying to fit a square peg into a round hole’ as there are certain types of spend that don’t need to go through a purchase order system. For example, subscriptions, which are a reoccurring and expected spend. Consequently, spend management tools that have invoice processing capabilities built-in should be considered, as an alternative to the more traditional and sometimes inflexible purchase order systems.
Factors influencing cost management
In managing costs within organisations, the group discussed influencing factors such as the increased significance of ESG, along with the importance of transparency, communication, and discipline in stakeholder management. One participant noted that mapping the supply chain to understand your ESG score is crucial, as is supplier resilience, given the number of companies that are going bankrupt. Lack of ethical behaviour in payment practiceswas shared as another issue that affects cost management, and finding a solution to this problem the group agreed was an ongoing challenge.
The new engagement philosophy
Hadfield shared the results of a survey commissioned with which showed that 67% of finance leaders believed that their finance teams were spending too much time chasing receipts instead of being enablers to the business. The group discussed how they, as finance directors and CFOs, can start to push this engagement philosophy down to their teams, particularly to their finance controllers and managers who the group agreed aren’t quite there yet. The group discussed several ways to promote this new engagement philosophy of finance leaders as business decision drivers. They agreed that setting an example is crucial to encourage their teams to follow suit. They agreed it’s the finance director’s role to sell the benefits of the new mindset to their team, highlighting how it will help them in their day-to-day work.
As the roundtable concluded, Hadfield shared the key takeaways from the discussion that took place. Firstly, finance teams should embrace the new engagement philosophy to guide stakeholders outside of the finance team, allowing them to lead credibly and be effective internal salespeople. Secondly, there should be an emphasis on the importance of having the right tools and systems within an organisation to aid the capture and dissemination of crucial business data, whether that is a spend management tool – such as Payhawk – which offers an end-to-end solution, or a more myopic tool such as a purchase order system. The key is being clear about what you want to achieve, and why. And finally, finance leaders need to have the right skills to collect the data and then analyse it effectively to drive positive business outcomes.
We were in a recession in 2020 because as a result of Covid-19- so probably not the first time CFOs have faced a recession?