4 ways CFOs can adapt to the downturn — and their changing role

As funding levels drop to their lowest level in six years, the chief financial officer (CFO) is a hot hire in 2023 — and an increasingly important voice in the boardroom. 

But the demands of the role are also growing and changing fast, with a massive shift from being reporting-focused to more strategy-focused.

Here’s how CFOs can best adapt to these changes. 

1/ Have frequent check-ins on costs and revenue 

Profitability and unit economics have become buzz words in the downturn. But to ensure financial stability in uncertain market conditions, companies — and CFOs — must make cash management the top priority. 

“It’s important to increase the frequency of check-ins on both costs and revenue performance so if you do spot any issues, you can react quickly,” says Jess Fiander, CFO of Prolific, a data platform for training AI and conducting research. 

But she says that it’s also important to leave room to change course in the current market, for example, “being particularly cautious with adding permanent headcount or other fixed costs”. (In her opinion, outsourcing projects is a good way to invest in growth but still maintain flexibility.)

Maryam Velasque, a partner at X-PM, an interim management firm, says that, in times of crisis, the financial director must take care of the cashflow level on a daily basis. 

“It may also be necessary to produce daily cash forecasts to anticipate needs: in the event of cash impasses identified on certain days of the month, this makes it possible to negotiate upstream with its financial partners to avoid the cessation of immediate payment while a robust remediation plan is put in place.”

She adds that while the CFO is generally “less listened to when it comes to making savings during periods of growth than during periods of crisis, this is a shame because when the crisis is there, the efforts to adapt the level of costs to the falling volume of activities are generally more significant”.

2/ Prioritise communication and transparency

Velasque says that CFOs cannot just be “numbers people” — they must be communicators too. 

“Their role is not to produce figures in abundance and, in the event of a problem, be able to say that they had said so. Their role is to analyse the figures produced, compare them to the past and the budget, and update forecasts in order to provide relevant proposals to operational management.”

Velasque adds that in times of recession, the role of the financial director is more than ever to alert people to the reality of the cash flow situation — now and for the next two to three months. 

“This acuity is necessary so that they can guide general management to make the right decisions, sometimes urgently, which may be necessary to guarantee the sustainability of the company and get through this difficult phase.”

Fiander agrees that internal communication is more important than ever in the current climate. 

“As a finance function, we need to keep not just our budget holders but everyone in the company informed on financial performance. By making sure people know how we're performing against our goals, any budget changes — up or down — should not come as a shock.” 

She adds, however, that there's a balance to be struck between “sharing sufficient [information] and not overburdening people with financial information”.

There’s also an increased need to collaborate with different teams across the organisation, such as business development and compliance.

“As well as just being a much more pleasant way of working with our colleagues, this also helps make sure other teams feel comfortable being equally transparent with us,” Fiander says. “This means more regular and honest updates on how business development initiatives are performing and no more surprising costs — enabling better planning and forecasting.”

3/ Avoid over-reliance on external tools

There has been a spike in the number of fintechs building in the niche of making the CFO’s job easier by automating mundane tasks and providing alternatives to old, legacy software.

But beyond the tools available to the CFO, Velasque says it’s important to remember that it is “calm, clear-sightedness, an analytical mind and the ability to make decisions which most often allow us to emerge stronger from a crisis”. 

For Fiander, while they’ve successfully adopted a few tools at Prolific to reduce the more manual processes in their team, when it comes to cashflow forecasting and financial modelling, “you can’t beat a good old-fashioned spreadsheet”.

“For the level of customisation we need, as well as additional ad-hoc analyses, it’s just easier to be able to build something completely custom to our business,” she adds. “I do love being able to work in the cloud though, having multiple people working in the same sheets and the ability to revert to previous versions has definitely reduced the version control problems.”

Though not keen on tools currently in the market, Fiander is optimistic about the benefits of automation in the future. “As with all finance roles, I also expect to see more and more automation of processes and reporting, hopefully allowing us to keep our teams lean and free up more time for adding strategic value and insights.”

4/ Build strategic partnerships with banks

Velasque emphasises that fostering strategic partnerships with banks can be a valuable strategy for CFOs to enhance their company’s financial operations, liquidity management and overall strategic direction.

She says that partnerships between financial directors and banking institutions are built on the transparency of the information regularly transmitted to banking institutions and the quality of the answers given to all their questions. “This shared trust is a major asset in getting through a cashflow crisis and can be further strengthened in the end.”

CFOs should research and evaluate potential banking partners based on their expertise, services and alignment with your company’s goals, she adds, as different banks may offer different strengths, such as international banking capabilities, digital banking solutions or specialised lending options. 

“My advice is: always cultivate at least two banking partners on a long-term basis and understand that effective risk management is crucial for both parties,” says Velasque. 

Fiander agrees that it’s about finding the bank that fits your practical business needs and then getting a relationship manager there — which she says is much easier once you reach a certain size as a company. 

“With one main contact, it’s much easier to build an ongoing relationship where you can keep them updated of changes in your business and vice versa,” she says. 

“In ad hoc calls with our banking partners, I’ve been made aware of new features or offerings that I wouldn’t have otherwise heard about — and these have brought about both better rates and time savings for the team in our banking processes.”