The finance function in the face of economic uncertainty

The finance function in the face of economic uncertainty



As expenses are likely to pile up and funding becomes more difficult to raise, finance leaders need to make the finance function more agile and productive.

While economic conditions seemed to be improving after the release of Covid, the future looks more uncertain than ever, with the prospect of recession looming. Between August 2021 and August 2022, 26.5% of additional business bankruptcies were recorded by the Banque de France.

From Brexit-related trade difficulties with the UK to the war in Ukraine, the circumstances were ripe to cause the prices of energy, components and raw materials to soar. Inflation thus reached 9%, its highest level for forty years.

On the one hand, business expenses are likely to accumulate, on the other, fundraising becomes more difficult to complete. We need to implement an approach adapted to the times ahead and finance managers are turning into warlords, reducing expenses and making the finance function more agile and productive.

Enjoin frugality

Cutting expenses won’t make finance teams popular with the rest of the business. Terminating software subscriptions, redefining marketing spend to prioritize return on investment, forgoing the help of search firms to find new talent… All of this will require explaining to stakeholders that these sacrifices are vital for the long-term successful business.

However, certain expenses are necessary (office supplies, business travel, marketing budgets, etc.) and are more of an investment than superfluous expense. Employees must be able to carry them out quickly, without the CFOs losing visibility on their cash flow.

Faced with this challenge, companies will have to rely on management platforms to automatically perform the process of validating professional expenses. These allow the finance function to ensure that budgets are neither exceeded nor misused.

Unlike cards, this type of solution makes it possible to empower employees because of their shared use. Thus, the latter are forced to spend sparingly because their transactions are traceable, and the financial teams can rely on accurate data, controlled and updated in real time. Also, teleworking raises other security issues around the sharing of business cards.

Since clear rules must be established with employees, platforms of this type allow CFOs to allocate and limit budgets.

Automation, a weapon against staff shortages

If on the one hand the digitization of the finance function can help to limit expenses, redirect financial teams to their core business: strategy (which must be their priority to get through the difficult period of the recession that is looming), on the other hand, digitalization minimizes the need to recruit in the finance function, a strength at a time when it is difficult to attract and retain talent in business.

Indeed, few candidates are motivated by tasks such as data entry. In addition, the margin of error will be higher when these low value-added missions are carried out manually. However, technological tools that integrate directly with accounting software also reduce data duplication and the margin for human error.

Predict cash flow to beat the recession

With 25% of company bankruptcies in France due to late payments leading to a lack of liquidity, companies absolutely must control their cash flow.

This statement is all the more true in the current context of uncertainty, especially concerning business models with irregular flows and dependent on investment cycles (start ups, scale ups, etc.). Rare are the potential investors who want to bet on a company that will be liquidated within six months, especially when times have returned to caution on the stock market and in the unlisted markets.

As technology advances allowing automation of accounting software and add-ons to be leveraged, it makes good sense to rely on them to generate accurate cash forecasts, rather than continuing to overburden skilled teams to complete spreadsheets for erroneous results.

Artificial intelligence, in particular, can help process company payment data, anticipate cash flows, identify bad payers and unnecessary expenses.

Only responsible management of business expenses and of cash in general will allow the accounts to be cleaned up and a return to a macroeconomic scenario of sustainable growth. Ultimately, these behavioral changes maximize impact and increase business value.

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