Navigating Economic Uncertainty for CFOs: Tips to Maintain Profitability

Delivering profitability in uncertain economic times

By Laure de Saint Germain, Global Director, Finance Solutions at Board International

The last 12 months have been anything but smooth sailing for Chief Financial Officers (CFOs) around the world and this doesn’t look likely to change soon. According to a new report by Gartner, EBITDA is expected to be down more than 30% by 2027 compared to 2022, indicating a far rockier road ahead than finance teams would like.

The potent era of historically low interest rates, steady economic growth, and cheap labour has come to an end, leaving many CFOs searching for new ways to maintain profitability in a much more challenging business environment. This is difficult, and it goes without saying that not everyone has been or will be successful. 2023 was littered with high profile bankruptcy filings, such as Bath & Beyond and Silicon Valley Bank, and there will likely be many more in the months and years to come.

When faced with adverse market conditions, CFOs typically focus their efforts on cutting costs, improving financial planning, and deploying best technological and workplace practices. However, while this approach makes sense, many simply tinker around the edges instead of taking the practical steps needed to tackle these tasks for the long term.

Simply put, in uncertain times like these, financial leaders need to be precise and bold to deliver and maintain profitability. But rather than acting on impulse they need to work strategically, using data-driven decision-making processes to enact meaningful change. Below are four key focus areas that will help them achieve that.

Navigate effectively through disruption.

In turbulent economic times, CFOs must plan more effectively than ever. This can be difficult, particularly if teams still depend on legacy tools and spreadsheets that weren’t designed for the data-heavy reality of today’s business environment. In this scenario, making the right technology investments can have a transformative effect in an incredibly short period of time.

However, while a growing number of organisations are starting to accept the importance of planning transformation, too many still consider FP&A as an output, not as a catalyst to drive change. Effective planning transformation requires foundational change with different skill sets, practices, leadership, and organisational structures.

Navigating disruptions means being informed, understand the drivers of the business, how operational decisions are impacting the company’s finances… and know where to move the needle to change the course of the business. Disruptions have a direct operational impact, which is why the two need to work together. And only an effective planning process can enable finance teams to navigate the complexities they face every day.

Enable growth.

When times get tough, too many businesses switch to survival mode instead of focusing on the growth opportunities still out there. To capitalise, CFOs need to determine where the most significant impact on the organisation’s growth and profitability can be made, both in the short and longer term. For instance, which products are the most profitable (factoring in rising costs in areas like materials, manufacturing and delivery)? Would a well-timed marketing campaign still pay dividends by raising awareness at a key moment in time? Would a new production line help meet increase in demand, or does the cost outweigh the immediate benefit?

Answering these questions isn’t always easy, particularly when operating under intense time pressure. It requires an agile approach to planning that enables instant modelling of the impact of each value lever on the rest of the organisation. It also means creating a stronger connection between operational KPIs and financial planning. Too often, business opportunities are evaluated under an operational eye – will this work technically? – or a financial eye – what the return on my investment? – but not both together. Evaluating the financial cost of non-financial activities is often undermined when looking at growth opportunities. And limited by the lack of adequate tools to do so. But when done correctly, it drives accountability in the finance team and empowers other departments to grow in the most profitable manner.

CFOs often must make bold decisions to cut parts of their business and refocus their core strategy. Making savings is not only about reducing costs, but also about disengaging when necessary – and at the right time. Growth looks like many things, and that sometimes might include freeing capital and resources that are not as profitable as they once were.

Adopt smarter ways of working.

Technology has been a game changer over the past few years. Finance teams that managed to see the impact of organising data or automating processes to handle complexity made a jump ahead. Easier said than done, with organisation facing established silos, lack of leadership buy-in to drive change and limited budget to upskill their staff. The problem is, how do CFOs achieve this with a team that is often over-stretched already?

The only way to meet this demand for knowledge, while maintaining performance enterprise-wide, is to move toward a new operating model. The ability to adjust work quickly and dynamically, do more with the same resources, and face the most pressing requirements of the organisation head-on are all vital changes that will help CFOs tackle the demands placed on both them and their teams. Four out of the top five CFO priorities identified in recent Gartner research relate to remodelling how the finance function supports the wider business and operations model, so this is clearly front-of-mind amongst many finance leaders already and will likely remain so for the impending future.

Look for talent beyond finance and accounting.

When it comes to financial planning and operational efficiency, the range of skills a CFO has available to them can have a significant impact on results, which is why they should aim to make their teams as skills diverse as possible. Traditional finance teams are primarily made up of professionals with accountancy backgrounds, and while the expertise they have is invaluable, adding employees with other skillsets and experience can be great for overall productivity.

For instance, analysts can perform in-depth analyses to uncover insights from vast volumes of data – way beyond the realms of Excel. They can also refine their searches and identify relationships and patterns as they go. Similarly, data architects can help bridge the gap between IT and finance, while storytellers can present findings to key stakeholders in a way that captures their attention and enables them to make rapid decisions with greater confidence.

CFOs are facing an uphill struggle to deliver and maintain profitability within the economic uncertainty of the last few years that shows no sign of abating. The path to modern FP&A is not “one-size fits all”. The most obvious answer for many companies today is the finance transformation path, there is also a way for everyone to level their game by prioritising the four areas above.

Being at “leading state” is not the best fit for every company, and there is a way for all companies to modernise their FP&A model regardless of their current starting point. However, prioritising key areas such as those listed above will enable the kind of bold, informed decision making needed to not only weather the storm, but emerge stronger on the other side.

Delivering profitability in uncertain economic times

Delivering profitability in uncertain economic times

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