Lynne Sampson | ERP Content Stragetist | April 13, 2023
The macroeconomic headwinds are picking up speed. Most economists predict a recession in the next 12 months. The United States inflation rate has more than doubled since 2020, driving central banks around the world to raise interest rates. Add to that, geopolitical uncertainties: the war in Ukraine, political unrest in countries from China to Iran, and lingering health threats posed by a pandemic that refuses to end. All of these trends continue to disrupt supply chains as fluctuations in demand and supply impact inventory levels, port access, and warehouse costs.
With all of this in mind, it’s not surprising that CFOs are battening down the hatches for the years to come. It will be up to finance leaders and their teams to help companies ride out the storm.
The role of the chief financial officer (CFO) continues to evolve, with less emphasis on scorekeeping and more on business strategy. Historically, the CFO has been responsible for the balance sheet, profit and loss (P&L) statements, accounting, the financial close, and regulatory compliance. But in recent years, many of these responsibilities have moved to a controller or chief accounting officer (CAO)—especially at large enterprises. CFOs are now more involved in planning and predictions, helping other C-suite executives make the best decisions for the company’s workforce, sales plans, inventory, supply chains, and other lines of business.
Increasingly, C-suite leaders are looking to connect their business plans across their finance, workforce, sales, and supply chain teams. This approach, known as “connected planning,” provides deeper insight into data across the company so that business leaders can get a good view of the whole business plan and not just one piece of it. Connected planning helps to improve decision-making and identify the right strategy for the business. More CFOs are now partnering with their C-suite counterparts (chief operating officers, sales leaders, etc.) to connect plans across lines of business and give executives better information company-wide.
In light of the economic challenges of 2023—including inflation, geopolitical unrest, and a likely recession—CFOs have identified the following as their top 10 challenges for the year:
According to a Grant Thornton CFO survey, 58 percent of respondents ranked cost optimization as their top concern for the next six months. Areas that CFOs are eyeing for cost savings include headcount, travel, consulting fees, product line rationalization, and technology investments. Potential solutions that CFOs are looking at to help them reduce costs include profitability and cost management software; AI and machine learning to automate tasks, such as data matching and account reconciliations; and predictive analytics to identify potential biases in forecasts.
Labor remains one of the scarcest resources in the business world, with millions of job openings going unfilled. A lack of finance and IT talent has troubled CFOs for nearly a decade, according to research from AICPA-CIMA, but today’s labor shortages extend to operations, manufacturing, logistics, sales, and entry-level jobs across industries. Finance and HR leaders are examining their workforce plans to help ensure their companies can continue to operate at scale.
CFOs in 2023 face the unenviable task of cutting costs while continuing to invest in the projects, products, and innovation that drive profits and revenue growth. While M&A activity is likely to slow due to the high cost of borrowing, other investments—such as expanding into a new region or product line—will need thorough evaluation to balance the risk with the potential reward. Careful scenario modeling using enterprise performance management (EPM) software can help with these evaluations.
When a recession hits, cash is king. It’s critical to have enough cash on hand to make up for possible revenue losses; and with high interest rates, borrowing to invest in growth can get prohibitively expensive. Historically, cash flow is calculated monthly; however, new technologies that use artificial intelligence can help CFOs get a snapshot of their cash position at any point in time. This vision of continuous cash forecasting has the potential to be a game changer when it comes to balancing debt with equity.
Financial planning and analysis (FP&A) is one of the basic functions of a finance team, but since the shock of the pandemic in 2020, many companies have increased the frequency of their financial planning cycles. Scenario modeling, in particular, has taken on a new urgency as CFOs seek to develop contingency plans for the next outlier event. Manual processes and spreadsheets slow down planning cycles, so finance leaders are looking at financial planning applications with AI, machine learning, and predictive analytics to improve both the speed and accuracy of their forecasts.
Attendees at the 2023 Davos conference in Switzerland emphasized the importance of profitable operations in the current economic climate. Profitability and cost management software can help finance teams work with sales and marketing to analyze each individual product and service—right down to the individual SKU—to help product owners offer the right products and services and set the right prices.
The past two years have seen many companies doubling down on technology investments as they realized that their legacy, on-premises systems couldn’t handle the workforce and supply chain disruptions of the pandemic. Now that they’ve spent all this money, CFOs are looking to wring as many benefits as they can out of their digital transformation efforts. With technology budgets likely to be cut in 2023, many companies will look to these recent investments to drive returns, reduce total cost of ownership, and help the company introduce new products and services with a minimal amount of new spend.
The lockdowns might have ended, but the supply chain disruptions continue amid geopolitical uncertainties and labor shortages. CFOs will continue to work closely with their chief operating officers (COOs) to plan for, and mitigate, supply chain disruptions with the help of integrated business planning software and systems.
Regulatory bodies in the EU have introduced new compliance requirements around environment, social, and governance (ESG) issues. The SEC is eyeing similar rules for public companies in the US—and while these rules might yet be challenged in court, companies are already preparing for compliance. ESG planning and reporting solutions must be able to pull together accurate data from across the company—including finance, sales, operations, HR, and supply chain systems—to create narrative reports that will satisfy regulators’ demands.
As interest rates rise, CFOs are keeping a watchful eye on company debt. Existing loan payments are likely to balloon, and new borrowing will be tightly curtailed. Any new investments to drive growth will rely more heavily on existing cash reserves. This will require careful financial planning to ensure that the company doesn’t overleverage itself (the most frequent cause of corporate bankruptcies).
Modern software solutions are designed for most of the toughest challenges CFOs can expect in 2023, covering the entire back office. A modern ERP system with financial management capabilities can go a long way toward helping CFOs close the technology gap, while consistent, robust data combined with real-time speed and powerful analytic tools help CFOs and their teams deliver the right information at the right time for strategic decision-making.
From accounting and financial and operational planning to supply chain and procurement, this holistic view helps CFOs work closely with other C-suite leaders to identify the best places to cut costs, while still keeping enough capital on hand to drive investment and growth. Cloud ERP software from Oracle also supports more frequent planning and forecasting cycles, so that as macro conditions change, the company can adapt its strategy and quickly execute changes.
CFOs in 2023 are worried about the impact that macroeconomic trends will have on their business. These trends include inflation, higher interest rates, geopolitical unrest, supply chain shortages, and a possible recession.
CFOs are heavily involved in planning and strategy, helping other C-suite executives make the best decisions for the company’s workforce, sales plans, inventory, supply chains, and other lines of business.
Among the top challenges facing today’s finance professionals: cutting costs, attracting and keeping talent, and balancing these two imperatives to ensure future growth.
CFOs care about the financial performance of their business and must take steps to mitigate the risk of macroeconomic trends, such as inflation and worker shortages. These steps might include cost-cutting, layoffs, frequent forecasting, investment, or expansion.