Top Challenges CFO's are Facing Today & How to Tackle Them
Over the past few years, Chief Financial Officers (CFOs) have seen a drastic increase in responsibilities within their job titles. What was once regarded as an additional position in the office has turned into the second-highest position within a company. CFOs work directly with the company CEO to improve financial performance and ensure a positive cash flow throughout a company's lifespan. Their list of responsibilities is extensive and will continue to grow in the coming years.
Typically, a CFO is responsible for:
- Building a team of financial experts
- Ensuring expenses and revenue stay at appropriate levels
- Overseeing financial planning and analysis
- Obtaining funding
- Making recommendations on mergers and acquisitions
- Working with different departments to analyze financial data and create budgets
- Ensuring accuracy of financial reports
- Consulting with the CEO about financial strategies
Despite the growing list of job responsibilities, the CFO position remains competitive to obtain. Individuals who are new to this position will have to showcase even more skills to earn a spot at the table. However, the CFOs who have been with their company over the years will have to overcome some serious challenges to recover from the recent global events that continue to negatively affect the current economy.
Here are the top challenges CFOs are facing today, and how to tackle them:
The current state of the economy is the worst it has been in 40 years and it doesn't seem to be improving (at least not yet). This is due to the drastic increase in the rate of inflation over a short period. Inflation is defined as a sustained increase in consumer prices and is typically caused by a greater demand than the available supply of a good or service for an extended period. In other words, a 20-dollar bill does not have the same buying power as it did 40 years ago because inflation rates increase by roughly 2 percentage points a year. Typically, this gradual increase allows consumers to easily adapt as it goes almost unnoticed. However, the rate of inflation rose a whole percent in just one month causing a massive strain on the economy and consumer's budgets.
Today’s inflation was initially considered to be a transitionary period as the economy was attempting to bounce back from the wake of Covid-19. However, the unbalanced supply and demand scale for goods during the pandemic caused a supply chain disruption which resulted in price increases and a shortage in supply. Between the lockdowns in China, multiple worldwide covid variants, and now the war in Europe, the world continues to have a hard time fully recovering from the initial blows of the pandemic.
So what does all this mean for CFOs? Due to their inclusive list of responsibilities, it falls on CFOs to navigate the issues that arise due to inflation within their company. The price of inflation is cutting into profit margins, influencing pricing decisions, go-to-market strategies, and vendor management. Financial projections that were created are also no longer helpful as inflation continues to rise on a month-to-month basis. Consumer and producer price indexes have also gradually increased alongside inflation, meaning that employee wages and the price of products will need to match these increases to remain staffed and in business.
In an attempt to stay ahead of inflation, CFOs should sit alongside their peers and CEOs to come up with multiple financial strategies in hopes to make it through this record-high inflation period. Coming up with various strategies to accommodate possible scenarios can keep a company on track and reduce the stress on CFOs and the company as a whole.
In the past three years, there have been numerous changes to the workplace causing burnout and a desire to find better work conditions. Though the rapid changes in the work environment and requirements occurred out of necessity, many employees were left to figure things out on their own on top of their personal challenges. This resulted in the resignation of both short and long-term employees, leaving businesses short-staffed at a time when individuals were too afraid to go to work. Through no fault of their own, CFOs are now left to figure out how to handle the staffing shortages as many businesses have made the return back to the office.
Now more than ever, businesses need skilled individuals to fill the empty spots created by the pandemic. This challenge is loaded with financial implications that must be looked at from a CFOs perspective. Hiring new individuals with adequate skills is a large expense (even larger now due to inflation) that can cut into a business's profit margins if not executed strategically. Managing turnover, short-term leave, training new staff, and providing resources required to work remotely all have costs and complexities to consider.
CFOs can tackle this challenge by having a plan in place on how to handle retirements and resignations so these expenses don't occur unexpectedly. CFOs should expect new hires to cost the company more. Reevaluating your budgeted salary, hiring a later-stage career leader, and utilizing a fractional option are all great ways to try and reduce the financial blow that can happen when hiring new employees to fight the staffing shortage.
With inflation at an all-time high and staffing at an all-time low, businesses have had to rework their finances to accommodate these recent challenges. This means that the overall available funding has been stretched throughout the company, reducing the allowed expenses of each department. This is done so that materials can still be purchased, current employees can still be paid, and new employees can be hired.
However, reducing department expenses is only a temporary solution to a much bigger problem. There are only so many ways that expenses can be reallocated within the businesses. In other words, if inflation continues to rise so will the price of goods and services. It also means that a company will need to offer more money for current and new hires to remain competitive and attract the most qualified candidates. Reallocating finances will only go so far until more cash inflow will be needed to keep all departments staffed and operating as they are intended. A business is likely to fail in these conditions without a proper financial strategy in place, which is where the CFO steps in.
Instead of reducing and reallocating expenses in each department, CFOs should sit down with their financial team and conduct internal research. Figuring out where waste is occurring throughout the company and where spending should increase is a great place to start analyzing internal costs. Understanding the true cost of expense reductions and how cost reduction can increase long-term expenses is a concept that should be explored by the CFOs and presented to the rest of the company to ensure long-term success.
There’s no doubt that recent years have been hard on individuals and businesses alike. With recent events still actively affecting inflation rates, there's a good chance these challenges will persist for the foreseeable future. Though there is nothing any one individual or business can do about the worldwide inflation, there is something your business can do about the staffing shortage and expense reduction. Hiring on companies that do the work of multiple individuals can save your business and CFO time and money. That's where fyorin comes in.
Fyorin is a global company that helps businesses of all sizes digitize their services and automate their receivables and payables. Through one-single login, they offer a payments and financial operations platform where you can benefit from tailored financial products for your business across a curated network of financial providers. These financial products range from dedicated multi-currency accounts to sub-accounts with their own dedicated IBAN and corporate virtual cards to better control your online spending. It also provides the ability to execute a single mass payment for all your supplier payouts and provides you with flexible and unified reporting mechanisms. A payments and financial operations platform like Fyorin, can help tackle your biggest financial challenges now and in the future.