How a Good CFO Can Get You Through a Recession

It’s impossible to avoid talks of recession, inflation, and the cost-of-living crisis. Companies have only recovered from the global pandemic. The fear of a recession is hanging over companies, threatening their pandemic recovery. Now is the time for companies to invest in a good CFO to see them through the coming recession.

The economic situation is a global scenario with CFOs across the world working to navigate the fallout of the War on Ukraine and the lingering consequences of the pandemic. There’s a short time frame for companies to hire a CFO in time for them to strengthen their financial systems and implement strategies for the coming weeks and months.

Early signs suggest this recession will be one of the most unpredictable in economic history. The UK has seen the impact of market uncertainty in recent weeks, highlighted by the Bank of England’s intervention in the bond market.

The evolution of the role of CFO makes this c-suite position more important than ever before. Gone are the days when CFOs spend their days balancing spreadsheets and crunching numbers. Their responsibilities now vary from stakeholder relations to cash flow management.

At FD Capital, we’re seeing a sharp rise in companies in every industry preparing for the recession by recruiting a CFO on a full-time, part-time, or fractional basis. We’re seeing CFOs prepare to navigate through the coming recession by rejecting traditional approaches and adopting a more aggressive strategy.

Understanding the Recession to Come

The UK is braced for its harshest winter yet with energy bills reaching record heights and the market experiencing sharp volatility. Everyone from households to multi-national companies is preparing for the so-called “inflation squeeze”.

There’s a short window of time for companies to adapt to the changing financial landscape. Hiring a CFO offers companies the chance to get their finances in order. While commentators are already comparing the inflation crisis to those of the late 20^th century, there’s one major difference in our favour.

The changing role of CFO. Today’s CFOs are the caretaker of the company’s health, but also play a vital role in their wider strategy. The upcoming recession is a perfect storm of skyrocketing energy bills, geo-political uncertainty, and stock market chaos.

We’re working to connect start-ups, scaling companies, and businesses with skilled CFOs who can prepare them for the upcoming recession and help them capitalise on their position.

Preparing for the Inflation Squeeze

The word ‘inflation squeeze’ may feel like a jump scare. What makes this inflation crisis different is that there’s still time to prepare. Data is crucial in preparing for the inflation squeeze. CFOs provide data-driven insights that ground the company’s decision-making process. They’ll prepare for the inflation squeeze by putting systems in place to access the latest data to provide real-time insights, they may also need to prepare for a future deflation squeeze or period.

This data can cover every aspect of the company, from consumer behaviour to supply chain delays and unit pricing. Such data is crucial when fluctuating pricing is one of the main consequences that can eat into a company’s profit margin.

Investing in data insights enables CFOs to create accurate forecasts and update their findings in real-time to account for price increases and market volatility.  This data is vital for scenario planning and stress-testing the company’s financial situation.

Energy bills are a prime example. A CFO can determine whether there are opportunities for cost savings elsewhere in the company to counteract rising energy costs.

The best way that a company can prepare for the recession and inflation squeeze is by investing in a CFO who will pay for themselves. A talented CFO can change the fortune of a company with an internal audit of its financial health.

We’ll work with your CEO to identify the specific needs of your company to find a CFO who will seamlessly transition into your leadership team.  You might be interested in CFO Headhunters.

Rejecting Strategy Assumptions

Recessions leave no room for assumptions. Data should underpin every part of a CFO’s strategy, leading them to reject strategy assumptions in favour of real-time data. Building your strategy on assumptions about previous recessions can prevent companies from adequately preparing for the crisis or even overspending.

It’s difficult for a company to predict performance levels without investing in data. You want a CFO who is knowledgeable about your specific industry and has their finger on the economic pulse. One reason why strategy assumptions should be abandoned is due to changing consumer behaviour.

Another aspect that makes it important to abandon assumptions is the unknown of government intervention. The UK government’s recent announcement – and subsequent minor U-turn – on the energy cap emphasises the unpredictable nature of living in an inflation crisis.

It’s a common misconception that recessions are all about keeping your company afloat. A well-positioned company can use a recession as a growth opportunity and capitalise on the economic situation. Even the 2008 financial crisis brought with it opportunities for companies in the right place at the right time.

Electric vehicle companies and renewable energy suppliers could see the same upturn that small mortgage lenders experienced in 2008. CFOs who lean heavily into consumer behaviour data and maximise their cash flow can capitalise on heightened demand for alternatives.

War Room Planning

If you don’t already have a CFO, it’s time to get one. CEOs are often stretched to their limits, especially if they’re also overseeing the company’s financial position.

A talented CFO will prepare for a recession by creating a ‘war room’ to develop scenario planning to ensure the company is ready for anything the economy may bring. War room planning allows CFOs to develop responses for every potential outcome from the best to worst-case scenarios.

An internal audit will also enable CFOs to identify any company-specific risks that should be accounted for, including outstanding debts, employee retention, and supply chain disruption. An internal audit, data, and company research will feed into the CFO’s war room planning.

Part of this process will involve the CFO coordinating with their colleagues and here the CFO and COO relationship is important, including stakeholders, to greater understand the risks the company is exposed to.

Developing an Inflation Plan

Those who fail to learn from the past are doomed to repeat it. While CFOs don’t want to linger too long on the inflation crisis of the ‘70s and ‘80s, there are lessons to be learnt. Today’s CFOs should build on these by using the data and company-specific information that is at their fingertips.

CFOs can navigate companies through the coming recession by creating robust financial systems using forecasting and algorithms that account for the volatility of the markets.

These financial systems have to account for more than just the company’s cash assets and liquidity. The pandemic highlighted the vulnerability of supply chains to market instability, cargo delays, and employee absence. CFOs can develop their inflation plan by learning from the pandemic, including identifying costs that the company can absorb internally.

Developing an inflation plan is vital for any company looking to navigate the recession. Start-ups and scaling companies can invest in their future by hiring a part-time or interim CFO to create an inflation plan.

Company Survival Strategy

Survival is the key aim of any company during a recession. Everything else is a bonus. A CFO will start their recession planning by creating a survival strategy with a focus on ways to invest in the company’s long-term future while minimising short-term losses.

Part of this survival strategy includes focusing on liquidity management. No CFO can create a robust survival strategy without considering the external risks that exist to the company’s liquidity. One key part of this is currency fluctuations, which are currently being experienced in the UK.

Short-term funding is a vital part of liquidity management. CFOs will help their companies get through the recession by engaging with different financial institutions and investors to make cash flow more robust.

Strong relationships with banks and lenders are an essential component for ‘war room’ planning, particularly in the company finds itself in need of financial assistance. These relationships are crucial for companies that are vulnerable to a higher level of non-payment from customers and clients during a recession.

CEO-CFO Collaboration

No relationship is more important in a recession than that of the CEO and CFO. Their goal is to work together to create a strategy that will enable the company to navigate through the recession without negatively impacting its long-term goals.

Communication is therefore vital to ensure that the CEO and CFO are working in unison. They’ll need to put up a united front for partners and investors, as well as communicating together to suppliers and other stakeholders.

Having a CFO in your team is a major confidence boost for board members and investors at a time when their support can make or break.  Your new CFO does not need to be full time, a popular and cost effective solution is the recruitment of a fractional CFO.

Balancing the Financial Books

The number one asset in a recession is working capital. CFOs will prepare for a pandemic by ensuring that their company has adequate cash flow. This review can also include finding ways to streamline expenses and reduce overhead costs, potentially by adopting a hybrid working environment.

Identifying areas of potential costs saving can allow the company to continue to make long-term investments without jeopardising its short-term goals.  Procurement and overheads are some of the most manageable costs to reduce. These cost savings can be achieved by making internal changes, including supporting employee retention, and accommodating flexible working.

Most CFOs will start their recession planning by carrying out an in-depth internal audit to ensure that every penny is being accounted for. Smaller companies and start-ups can choose to hire an interim CFO to carry out this process and prepare their organisation for the recession.

Explore Potential Growth Opportunities

It’s easy to linger on the negatives of a recession. Companies with secure funding and robust strategies can capitalise on the opportunities that exist during a recession.

CFOs can identify potential growth opportunities, particularly within the field of mergers and acquisitions. Stronger mid-size companies can acquire smaller organisations within the same industry to boost their market share.

If a CFO is industry aware, they can spot opportunities to build their market presence while competitors struggle with weaker cash flow.

Other areas that can offer growth opportunities during a recession include advertising and recruiting. Many companies will choose to work with boutique recruitment agencies to build their talent pool while other companies are financially unable to provide competitive offers.

Growth opportunities can also exist when re-examining the supply chain of a company to ensure the organisation is getting maximum value out of each component. Restructuring a supply chain or working with new partners can result in better rates or turnaround times.

Building Company-Wide Resilience

A company’s resilience will determine whether or not it can survive the recession. A CFO’s recession planning should account for proactive goals that are both short-term and long-term. An internal audit is vital to determining the starting position of a company’s resilience and vulnerabilities.

CFOs will navigate a recession by creating financial systems that will track the spending and capital of their company. Understanding each component of the supply chain will enable CFOs to identify any areas of cost savings and prepare against excessive price increases.

A company’s resilience is determined by its ability to have price stability to prevent customer drop-offs. Some industries may require products or services to be adapted or redesigned to facilitate price stability.

Resilience also extends to the company’s operations, including in-house costs. Tracking productivity and investing in technology is vital to ensuring that employees have the skill set to stay ahead of market trends and promote efficiency.

Investing in employees with training and career progression helps to encourage company resilience. Companies with a high turnover rate spend more on recruiting and are less productive due to employee transitions.

Hiring a CFO to Navigate the Recession

What is the best way for a company to prepare for a recession? By investing in a CFO with the skills and experience to put a robust strategy and constituency planning in place.

FD Capital is working with dozens of companies to help identify the ideal CFO candidate to support their organisation through the pandemic. We’ll connect you with a talented CFO is understands your industry and relates to your company’s mission. Start your search for a CFO today by contacting our team at recruitment@fdcapital.co.uk.