The pressure on CFOs today is more intense than ever before. Their roles have become increasingly complex amid an uncertain financial landscape, resulting in the kind of financial challenges that CFOs 10 years ago could never have imagined they would be facing today.
Rapidly changing consumer and business purchasing habits have caused demand to fluctuate wildly, nullifying forecasts and ongoing financial projections. At the same time, rising costs on raw materials, packaging, and transportation have cut deeply into the profit margins that CFOs are tasked with managing. And soaring inflation has only exacerbated the challenge of rising costs across all industries. However, today’s top CFO challenges are not solely financial in nature. Sure, they bear the burden of company-wide challenges that have a financial impact. But their roles are also more visible than ever before, putting them in the public spotlight (even at privately held companies) and in the hot seat when it comes time to make strategic financial decisions. Furthermore, social matters like DEI concerns and withering company culture among remote employees are also taking a toll on CFOs and other C-suite leadership.
Find out what today’s top hurdles are for CFOs in this compendium of CFO challenges:
1. Inflation
Inflation has far surpassed the Federal Reserve’s forecasted numbers, soaring to 7% at the beginning of the year. This has been the largest year-over-year gain since 1982, making it unignorable in any financial conversation in any board room in America.
CFOs are dealing with cost increases as a result of this hike across everything from staffing to materials costs. But the rise in inflation is not just cutting into profit margins, it is also influencing decisions related to pricing, go-to-market strategies, and vendor management. And financial projections, which have become less reliable since the start of the pandemic due to greater economic uncertainty, are now under even more strain with inflation numbers rising much faster than experts imagined.
Matching rising inflation, the producer price index (PPI) and consumer price index (CPI) have increased as well over the same time period, indicating that many companies will need to increase their prices and start paying employees more to keep up. We are at a watershed moment. How CFOs handle inflation in the way of product/service pricing and wage increases now in conjunction with their CEOs will determine how their companies grow in the coming months and years, and whether they are able to bounce back at all.
As a result, rising inflation has become the top challenge for CFOs these days, with no sign on the horizon that it is going to return to pre-pandemic figures anytime soon.
Advice to Combat this Challenge:
Have open and honest conversations between the CEO and CFO as well as other members of the C-suite to develop and analyze multiple scenarios for future inflationary numbers. Using a decision-tree can aid in complex strategic decision-making and help companies to respond to market changes as they occur.
2. Expense Reduction
Reducing costs has been the name of the game for many organizations throughout the pandemic, but cutting expenses has taken funding away from all areas of the business – everything from payroll to R&D.
In an article on how CFOs can succeed in their roles, the analysts at McKinsey point out that,
“To gain the time for agenda-shaping priorities, CFOs must have a well-functioning finance function behind them; otherwise, they won’t have the credibility and hard data to make the difficult arguments. Many new CFOs find that disparate IT systems, highly manual processes, an unskilled finance staff, or unwieldy organizational structures hamper their ability to do anything beyond closing the quarter on time.”
With staffing, business software, and operations costs being cut, these problems are going to continue to be further magnified, making them an area of key concern for CFOs.
Advice to Combat this Challenge:
Instead of cutting costs, our team explains that companies should aim to move beyond a cost reduction strategy by including cost reduction in a broader financial strategy that also aims to understand:
- Where waste is occurring that can be eliminated
- The true cost of expense reduction
- How cost cutting may increase long-term expenses
- Where spending should actually increase
3. Usage-Based Pricing
Subscription services are out, and usage-based pricing is in! SasS (software-as-a-service) companies in particular are jumping on board the usage-based pricing model in droves these days because they realize it can generate more revenue.
The idea behind usage-based pricing is to make more money from heavy users of your software or service, while reducing the cost to lighter users to retain their business. And while this makes a lot of sense financially, it is often far more difficult to manage, requiring significant reliable systems integrations with invoicing and accounting software.
Additionally, with added pricing model complexity comes more financial decision-making from CFOs to ensure that the company remains profitable and retains key accounts. Paired with inflationary challenges, usage-based pricing adds another layer for CFOs to manage as they try to poise their organizations for long-term success
Advice to Combat this Challenge:
Ensure your critical business software, apps, and integrations will keep up with the added demands of usage-based pricing and then manage usage-based pricing like any other pricing strategy to maximize cash flow. Set payment terms and manage customer payments to create and maintain cash reserves. Then analyze and adapt pricing as needed to ensure positive cash flow moving forward.
Want to find out what the remaining challenges are for CFOs today? Join us next week to discover what the last three challenges are and how you can overcome them.
Stay tuned! And until then, please reach out to us if your CFO has decided to retire or given their notice. We can work with you to provide interim CFO services as well as search for and hire a CFO. Our highly experienced team of executive recruiters specializes in placing CFOs across a wide range of industries.
