In the current economic landscape, finance leaders face the compounding effect of the pandemic, elevated inflation, the war in Ukraine and high interest rates.
Combined, these societal and economic upheavals have created great uncertainty. Not just in the UK, but also in the global economy. Finance leaders cannot control these events. Instead, the aim is to anticipate these convulsions (as much as possible).
“I think that’s the biggest challenge that you have as a finance leader – making the correct decisions to ensure that your business is still ready to grow and adapt when the market does correct itself,” says Barry Smith, group budget accountant at Soldo.
The good news is that economic downturns are not a novel event. Accountants have a library of past market upheavals to ably judge what works and what doesn’t. As Smith says, organisations must “manage the manageable”.
“The things that you do have control over and the things that can impact change will be positive to your business. So, ask yourself, where can you control costs, and are there any niches and opportunities in the market that you can benefit from?”
Measure twice, cut once
Cost cutting is never easy. And while some degree of a collateral damage is always likely, it’s important to retain a positive perhaps even attacking mindset. After all, a change in the market often brings opportunity. Organisations must “effectively play this new game”.
Although during this period businesses will be constrained by finances, Smith says CFOs can still look for opportunities to develop, such as internal employee promotion and benefits, which goes back to the holistic approach.
“If you’re very traditional in your approach, you’re removing any growth possibilities and you’re probably not even looking at them. You’re purely focused on cost-cutting and you’re not looking at opportunities in that market” he explains.
Make people part of your narrative
Smith says that business value is based on internal talent and that is where businesses should focus. “Bring your people into the narrative” he states. “You want them to feel that they’re part of the solution and part of the way that you’re going to navigate your stormy waters.”
“I think whenever you change your business focus, it creates nervousness internally within the business, as well as externally in the market” explains Smith. “If you’ve got investors, you’ve got to manage that, and it’s a big task because you’ve got to communicate the message in a clear and effective way.”
There are also your external relationships, with partners and suppliers. Businesses all have “key partners, connect with them, talk to them” he comments. “Work through any issues you may have and ask how you can work better together, because they will be feeling the same pain that you are.
Keep it simple
There are several key aspects of cost-cutting that CFOs need to be aware of, but ultimately, it is how you “manage your internal expenses” that determines how smoothly you navigate past uncertainty.
A particularly leaky and often overlooked cost to businesses is the expenses process. There is the classic overspend and lack of control. And silly things like duplicated subscriptions (that can stack up in a big organisation).
More generally, these small but frequent costs are easy to overlook in more bountiful economic periods. But in a crunch, small margins matter. In one famous instance, Uber realised it was spending six-figures a year on helium balloons used to commemorate staff anniversaries.
CFOs need to know where money is being spent and when those expenses are likely to happen. “An expense management tool like Soldo makes this much easier,” Smith says. “Technology reduces the burden on the finance team by automating the bulk of this. It gives you much better visibility of all the costs that are going out.”
With the right technology and resources, “you can get to that point quite quickly to reduce any waste that you’ve got in the business.”
Three strategic pillars
To develop the best strategy for their business, finance leaders need to keep three key factors in mind, according to Smith. The first being – do you have controls in place to not only retain value, but also to support the business as you grow?
Next, finance leaders need to ask, “what things they are doing well, what work needs to be done and what additional support does your business need”. Then there are the markets. “You’ve got to play to your strengths, particularly in a down market. There is no point in trying something which the business simply does not have the capacity for” he comments.
“If you spot opportunities to develop niches that also exploit your strengths, make sure that you have the capacity to deliver. Your innovation should be done for your customers, as opposed to a reaction to your competitors.”
Was this article helpful?