The following is a guest post from Jeff Casale, chief executive officer of Board International. Opinions are the author’s own.
Since 2022 following an initial spike in interest rates in the U.S., we’ve seen deteriorating market conditions, including fluctuating levels of inflation, rising interest rates and an overall unsteady economic environment. Recent data from Gartner predicts that by 2027, EBITDA margins will be down by more than 30% relative to 2022. For corporations, this results from a reduction in discretionary and nondiscretionary spending — largely due to rising consumer debt levels and weaker-than-expected cash flow.
As businesses can no longer depend on the convergence of low rates, cheap labor and steady economic growth, CFOs are now tasked with delivering profitable outcomes for their businesses, despite economic uncertainty. Analysts predict an increasingly volatile operating environment, so CFOs must stay ahead of the curve by delivering profitability. Let’s take a look at five ways to do so.
1. Navigate effectively through disruption
With CFOs expected to set businesses up on a profitable growth path despite an unsteady economic market, they must prioritize initiatives aimed at bringing the entire FP&A function to a state of maturity. This means foregoing time-consuming and inefficient spreadsheets and legacy planning tools and instead adopting new finance applications to establish fast, automated planning. With an estimated 78% of FP&A professionals surveyed in the 2024 AFP FP&A Benchmarking Survey reporting that they would be pursuing advancing their knowledge and skills in technology and data over the next 12 months, the time for intelligent transformation is now.
2. Make bold decisions
The successful deployment of cutting-edge technology and tools such as AI will ensure that finance leaders can meet their goals of cutting costs and streamlining operations while simultaneously staying ahead of the curve in a rapidly evolving sector. Technologies such as AI present CFOs with the opportunity to capitalize on their potential to transform finance functions, including through automating planning, reporting, cost analysis and budgeting.
3. Enable growth
To navigate what analysts expect to be a less profitable period of growth within the next three years, finance leaders must create a balancing act to meet both short-term and long-term business goals. In a 2023 McKinsey survey asking where CFOs spent the most time in the past 12 months, respondents reported spending most of their time managing financial risks, followed by identifying growth opportunities. With the instinct to prioritize short-term financial health to protect their business’ profit margins, this leaves little opportunity to maintain a competitive advantage over new entrants. As a result, CFOs must prioritize long-term growth. This includes business building, restructuring of capital structure and internally transforming all divisions to create value and generate new revenues.
4. Adopt smarter ways of working
Prioritizing investment in new finance technologies is crucial now more than ever for CFOs to navigate economic disruptions while remaining able to adapt to unexpected changes. In the past two years alone, global corporations have witnessed the passing of new regulations including the Securities and Exchange Commission’s (SEC) new regulations on climate disclosures in addition to the EU’s Corporate Sustainability Reporting Directive (CSRD) – both of which will require companies impacted to reevaluate their methods of reporting to meet new requirements.
Faced with looming compliance deadlines under these new regulations, CFOs must redefine their finance operating model based on a data-driven approach to planning, enhanced automation and integration. Enabling autonomous and asynchronous planning and new methods of measuring success will keep businesses on track to meeting business needs.
5. Look for talent beyond finance and accounting
As business needs and goals undergo a major shift through the next three years, so will the teams necessary to navigate a challenging economic environment. For CFOs, this will mean recruiting and maintaining an FP&A team who possess the following skills, as proven by the FP&A Board Maturity Model.
- Analysts. By performing in-depth analyses to uncover insights from vast volumes of data, analysts can refine their searches and identify relationships and patterns beyond the realms of Excel.
- Data Architects. Data architects are the bridge between IT and finance, building driver-based models and implementing flexible analytical solutions based on what is driving the business.
- Data Scientists. Data scientists are the bridge between data science and finance, leveraging scientific, mathematical, statistical and machine learning (ML) as well as AI to present critical data to businesses to inform decision-making.
- Storytellers. Storytellers, such as data visualization experts, are integral to the decision-making process, by presenting crucial analyses of the businesses to key stakeholders resulting in a more informed decision
- Influencers. Influencers play a unique role in strategic business partnering in helping to ensure that the FP&A story meets the evolving needs of the business.
Forecasted to be a challenging era for finance teams, the pressure will be on CFOs to take bolder steps to ensure profitability and maintain efficiency to meet short- and long-term company goals. Their success will be dependent on their ability to take calculated risks, leverage the right tools and technology, and leverage the innovative talent needed to ensure overall success.