How a CFO can navigate a recession
The impact of the pandemic and the war on Ukraine is making itself felt in every aspect of our lives. The country is once again in a recession. The global downturn will be a difficult time for CFOs to navigate. Companies have a short time window to prepare themselves by strengthening their balance sheet and taking control of their cash flow and supply chains.
This recession has signs of being one of the most unpredictable yet. Uncertainty means that markets are experiencing ebbs and flows with the changing landscape making long-term strategies difficult.
The role of CFO has never been more important. Organisations from start-ups to multi-national companies are turning their recruitment focus to CFOs to help guide them through the months and years to come. Boutique recruitment agencies like FD Capital are seeing a sharp uptake in recruiting senior financial professionals.
CFOs can navigate a recession by moving away from traditional approaches to strategy and examining their previous assumptions to take a more aggressive tactic.
Abandoning assumptions
One of the biggest mistakes a CFO can make in a crisis is to build their strategy on assumptions. Companies often develop their strategy around the assumption that performance will return quickly after an economic downturn. This assumption can lead to companies overspending and not adequately preparing for longer financial crises.
Trying to predict and project performance levels during an economic downturn is difficult. It requires CFOs to have their fingers on the industry’s pulse and closely examine consumer behaviour and demand.
While consumer behaviour and access to capital are pivotal in determining an economic bounce back, CFOs also have to be aware of government action. This variable can be difficult to forecast and accurately predict. The government’s recent announcement of an energy cap, one of the largest fiscal events in recent times, is evidence of that.
Recessions can also offer growth opportunities – for companies in the right position. This situation depends on the market that the company operates in. Well-positioned companies in certain markets can capitalise on the economic situation. Small mortgage lenders thrived during the 2008 crisis, while electric vehicle companies could experience the same upturn as consumers look to switch diesel cars for renewables.
Crisis planning
More companies are choosing to respond to the recession by hiring a CFO to oversee crisis planning. CFOs can navigate a recession by focusing on scenario planning to prepare the company for any potential economic outcome. These scenarios should range from best to worst case. CFOs will build in company-specific risks that consider their supply chain, consumer behaviour, and cash flow. This scenario planning requires contingency planning.
CFOs should consider their strategy as developing a ‘war room’. It involves working closely with colleagues and stakeholders to understand production issues, supply chain, and management.
Survival strategy
CFOs need to create a survival strategy that accounts for all cash-generation scenarios. Companies can invest in their long-term future by hiring an interim or part-time CFO to help them navigate through the recession.
Liquidity management is vital for CFOs during a recession. CFOs should follow the lead of banks by considering the external risks to liquidity, including currency fluctuations.
Companies will need to find ways of securing short-term funding, which may require them to engage with different banks and financial institutions. CFOs can navigate the recession by building strong relationships with financial institutions and lenders. Companies in certain markets should also be prepared for higher risk of non-payment from clients and customers.
Balancing the books
Working capital is vital during a recession. CFOs often choose to tighten the cash management of their company to reduce the working capital needed during a recession. Streamlining expenditures and analysing outputs can help CFOs identify potential savings. CFOs often identify other potential areas where cuts can be made if required to increase cash flow. Identifying these areas can help preserve long-term investments even during a recession.
Procurement, compensation, and overheads are the easiest costs to reduce or mitigate against. More companies will likely choose to go remote or embrace hybrid working to reduce overheads during a recession. Recruitment agencies like FD Capital are continuing to see a rise in remote working positions, including for CFOs.
Cash flow will make or break companies during a recession. CFOs have to be aware of every penny that is going in and out of their companies. It’s more important than ever for CFOs to examine the financial systems they have in place. Hiring an interim CFO can ensure that your company is ready to navigate its way through the recession.
Exploring opportunities
If a company has funding secured during a recession, there are ways they can seize on opportunities. CFOs can plan for proactive mergers and acquisitions, particularly if they oversee a larger company that can purchase small to midsize organisations in the same industry.
Companies with weaker cash flow and high funding needs can present opportunities for more stable companies to grow their market presence. CFOs in financially strong organisations can re-evaluate their portfolio and explore growth opportunities.
Recessions are also a time when financially strong companies can take advantage of less competition for advertising, recruiting, and R&D. Stronger companies can outspend their competition in these fields. CFOs can work with boutique recruitment agencies to build their talent pool at a time when other companies are unable to provide competitive offers.
If a CFO has well prepared their company for recession, they can take advantage of the situation and find more value in their supply chain. CFOs can work with the operational team to restructure the supply chain and explore the potential of working with new suppliers at more favourable rates.
Recessions are a difficult time for companies in every industry. However, it is possible to navigate your way through economic downturns. A CFO is the most vital part of any company’s recession preparations.
Working with a specialist recruitment agency, like FD Capital, can help you connect with a CFO who understands your company’s mission and navigate it through a recession.
