How CFO's should prepare in an economic downturn

With economic instability continuing to rise, finance leaders are faced with an array of challenges in the upcoming year. From ESG policies, supply chain issues, inflation, and dealing with the remnants of the pandemic, today’s economic environment calls for measured investment decisions. With more and more signs pointing toward a recession, CFO’s are reluctant to invest in new projects and instead seek to cut costs. 

According to StrategicCFO360, only 46% of CFOs expect profits to increase over the next year, down 17 points from August. A total of 67% of CFOs report focusing on cost containment, while only 13% say they are doubling down on investments to take advantage of the recovery.

For CFOs and businesses that want to come out on top of this downturn, now is the time to invest in strategic tools to help your business grow and thrive despite economic challenges. Structural solutions are essential to help you confidently manage costs and build resilience by driving long-term value creation.

Vic.ai recently co-hosted a virtual discussion with our Reseller partner, C2FO. Aditi Charnoubi, Chief Growth Officer at Vic.ai and Alexandra Donnelly, COO at C2FO, share 3 tips to sustain growth through inflation and economic uncertainty. Watch the full recording to:

Act with urgency

According to Deloitte's third-quarter "CFO Signals" report, 46% of surveyed CFOs expect the North American economy to be in a recession by the new year. Many CFOs are preparing for the looming recession by closely managing operating expenses, freezing hiring, and boosting productivity; however, in times like these, CFO's need to focus on ways businesses can be proactive instead of reactive.

We've all seen inflation over the last several months, with the consumer price index up 7.7% Year over Year in October. Orders are slowing as demand slows, which is why being proactive is key. As a result, many Fortune 100 finance teams are focused on:

• Finding more innovative ways to improve gross margins
• Diversifying and strengthening supply chains to bridge the gap until ordering picks back up
• Investing in automation to enhance operational leverage in a tight labor market.

It is crucial to remember the real key to navigating an economic downturn is flexibility and preparation. 

Mitigate risk with proactivity

With inflation at its highest in nearly four decades, CFO’s are working hard to meet the expectations and needs of their organization. One thing we caution against is to avoid losing sight of long-term goals by limping along with short-term solutions. 

Here are 5 ways you can be proactive:

1. Review and assess the company's financial position: CFOs should closely review the company's financial statements to identify any potential vulnerabilities and areas of risk. This includes analyzing cash flow, debt levels, and liquidity. When times are bad, it’s important to know your books in real time and to be nimble to course correct as needed. 

2. Develop a contingency plan: CFOs should work with the rest of the leadership team to develop a contingency plan that outlines how the company will respond to different economic scenarios. This may include measures such as reducing expenses, increasing revenue, and seeking additional financing. It’s important to have a contingency plan, to do more with less, and to improve operational efficiency and reserves to maintain a steady margin without cost cutting to ride out the wave.

3. Communicate with stakeholders: CFOs should make sure to keep all stakeholders, including shareholders, employees, and creditors, informed about the company's financial position and any steps being taken to mitigate risk.

4. Look at cost efficiency within your organization: CFOs should review the budget and identify areas where expenses can be reduced without negatively impacting the company's operations. It is important to know when to scale back and when to invest.  

5. Evaluate where to invest: After reviewing the company’s financial position, CFO’s should begin to evaluate which areas of the company they should invest more into. CFO’s should take advantage of this opportunity to cut out manual processes and streamline their operations by investing in digital transformation. Another key area to invest is in your employees. It’s time to invest in your people and help them upskill as one invests in technology. In the times of great resignation, or to put it a better way, as people are re-evaluating their work-life choices, invest in your people.

Invest in innovation

Let’s take a look back. Before the Pandemic in 2018, only 24% of organizations said they had the digital capabilities required for digital transformation. A year into COVID-19, 64% of C-suite executives said digital technologies positively affected their bottom lines, and 69% of respondents said their organizations saved money, according to a survey conducted by Randstad US. 

Even through a global crisis, companies were able to grow and save money by prioritizing and investing in digital transformation. Imagine how many companies could have survived or accelerated growth if they had taken the digital leap before the crisis hit!

It’s easy to only focus on cost-cutting during challenging times and avoid investing in new projects. Still, the best companies are able to grow and thrive with new tools and business ideas during economic turmoil. Major tech companies like Uber, Spotify, Airbnb, and Square were all founded between 2006 and 2009 during the last financial crisis proving that great businesses can still come from a downturn. Wisely, these leaders understand more than ever that technology isn’t a cost center but a business driver.

Change the narrative

Investing in innovation and pushing digital transformation into a higher gear aren't apparent actions to take in an economic downturn, yet they are crucial steps in growing your business long-term. Digital transformation requires changing how companies think about organizational structures and actively investing in ways to boost productivity to increase revenue. 

Don't lose focus on growth. Take the time to prepare, re-evaluate your current tools, and be proactive. Don't wait until the crisis hits. 

CFOs have more responsibility than ever to be forward thinkers and craft innovative strategies to drive company growth. It's time to double down. Download our Recession Playbook to identify the right areas in your company to invest in, how to invest intelligently in the right technology for your business, and gain a competitive edge during a crisis.