Key learnings that all CFO’s need to apply in 2023

While scrolling through LinkedIn the other day, I came across a post by Ken Wienand (Fund Principal: Turnaround and Value Add at the Public Investment Corporation) which summed up the past two years very concisely.

He wrote:

No one I know began this year on a full tank. Given the vicious onslaught of the previous two years (let’s just call it what it was) most of us dragged ourselves across the finish line of 2021… frazzled, spent, running on aged adrenaline fumes…

We crawled into 2022 still carrying shock, trauma, grief, heaviness, disbelief… The memories of a surreal existence…

And then it began… The fastest hurricane year we could ever have imagined. Whether we have consciously processed it or not, this has been a year of more pressure, more stress, and a race to “catch up” in all departments… Every. Single. One. Work, school, sports, relationships, life…

Though not intentionally aware, perhaps hopeful that the busier we are, the more readily we will forget… the more easily we will undo the emotional tangle… the more permanently we will wipe away the scarring wounds…

We can’t.

Financial distress is not only about bad business practices or facing an external environment that is applying untold pressure on companies. There is a significant emotional component to financial distress. If left unchecked, this can lead to poor decision making which in turn leads to poor business practices.

I’ve pointed out before that companies need to ignore large parts of the learnings that they have applied to their businesses in the past to focus on the current – unique – requirements that are needed to drive a company forward. However, don’t throw out the learnings completely! I recently read an article on the Forbes website which discusses three key learnings CFO’s need to pay attention to in 2023.

Implement improved forecasting models and set achievable growth targets

The article points out that, despite the aggressive interest rate hikes put forth by the Federal Reserve this year in attempts to cool inflation, the cost of goods and services continues to rise at record-breaking rates. In September, prices (outside of food and fuel) climbed 6.6% over the year—the quickest rate since 1982. There are no signs of inflation slowing anytime soon, and the Fed will likely continue to raise interest rates in an ongoing effort to combat inflation.

Meanwhile, with continued geopolitical tensions in other parts of the world, in combination with the Fed’s battle to keep inflation under control, international investors have helped boost the value of the U.S. dollar, and this is poised to continue in the year ahead. Multinational businesses will continue to see an impact on their earnings in the months ahead, as profits from abroad take a noticeable hit.

The article adds that inflation, interest rates and foreign currency will all significantly impact revenue and expenses, and CFOs will be spending more time searching for ways to offset these negative variants. It may be helpful to conduct a thorough vendor spend analysis to help determine which are critical and which are not for the year ahead.

In any case, CFOs will need to implement a flexible forecasting model as these market conditions evolve. Furthermore, company growth targets have been trending down and will be less aggressive for 2023 as the cost of capital remains high and the investment hurdle rates will likely remain constant or slightly more conservative.

Invest in digital transformation to optimize your team and processes

The article points out that, by now, CFOs and the rest of the C-suite appear to be aligned in terms of digitalization as a high investment priority. According to a recent global survey of CFOs, more than 70% of CFOs surveyed recognized the need to invest in digital technologies as their top priority. Furthermore, a 2022 Protiviti survey found when CFOs were asked about their organization’s most important priority over the next 12 months, respondents specified automation most frequently.

Leveraging digital technologies, such as automation, to modernize financial reporting processes improves efficiency and reporting accuracy, compensates for smaller team sizes and frees up time for finance teams to focus on more strategic, value-additive work. Digital automation can also boost employee engagement and further drive business growth initiatives. Optimizing your operational processes with the right digital tools is critical for business success during periods of continued volatility.

Focus investments on talent retention aligned with business strategy

The Forbes article adds that, in a continued period of workforce challenges, CFOs are still dealing with the fact that wage growth is still trailing inflation rates, despite the significant increase in compensation for finance talent over the past 18 months. Businesses will need to think strategically about where to allocate resources and investments to protect and strengthen their pool of talent.

A recent Deloitte survey of CFOs indicated a greater need for investment in financial planning and analysis capabilities. When asked about the most effective retention methods, 63% of the CFOs said providing career development and clearly defined growth opportunities was most effective.

The article points out that, additionally, partnering with CPOs or CHROs to implement repeatable talent planning strategies that are aligned with business objectives will also be a high priority. Another 2022 Protiviti survey revealed that “leading companies conduct quarterly assessments of their teams and compare those evaluations to the talent and skills needed to execute the business strategy.” Creating this alignment between talent and business strategy also requires the development of new metrics to identify skills that were at risk and any potential upskilling opportunities. This helps identify investment priorities that can strengthen the business, as well as continue to engage and retain your employees.

Planning for 2023 will be no easy feat for CFOs and finance departments, as they continue to brace for another year of challenging economic conditions. Focusing on cash flow while driving business growth is a delicate balance that will require more accurate forecasting models, as well as more realistic growth targets to keep the business headed in the right direction.

Investments in digital transformation and talent retention are likely to remain top priorities in the year ahead, with the anticipated continuation of workforce challenges and higher demand for business-critical insights from finance teams. A laser focus on these key areas from the past year will position CFOs with a strong and secure 2023 game plan.

It all comes down to implementing meaningful change within a business. And it is our job as turnaround professionals to ensure that we keep our clients on track to implement this change.

Robin Nicholson is the Director of Corporate-911 and is a Senior Business Rescue Practitioner.