And while nothing about the future is certain (especially not this year), it’s possible to divine a likely course of events. So let’s nail our colours to the mast, and make some predictions about how these trends will play out.
So, what’s keeping CFOs up at night as we head into 2023? Without a doubt, the state of the world economy is at the top of the list. In the UK at least, it looks like a recession has been staved off (for now). But economic uncertainty still abounds.
75% of the 650 finance executives who participated in an October 2022 survey singled out economic disruption as “2023’s biggest challenge.” And 96% said the looming recession would affect business in some way.
Jitesh Patel, Soldo’s Accounts Payable Manager, says the rocky economic landscape is likely to create a double-whammy.
“With the cost of living going up,” he says, “lots of employees will be asking for raises. That’s to be expected."
“But businesses will also be dealing with many of the same pressures their staff are — skyrocketing energy bills, increases in the prices of raw materials and suppliers’ fees, rising rents. The list goes on.”
In this kind of scenario, the knee-jerk reaction is to tighten the purse strings. But, cutting budgets too much risks being counterproductive.
Campbell Harvey, a finance professor at Duke University, puts it this way: “You might emerge in seemingly good shape, but your competitive positions can be damaged because you’ve done things to sacrifice long-term value creation.”
The upshot is that, while caution and, yes, some cost-cutting are inevitable, there’s a balance to be struck.
“You need to determine what your goals are,” Patel continues, “then work out a compromise you can live with, whether it’s putting a non-critical project on hold or raising more capital through an investment round."
“Ultimately, all businesses need money to keep going. If you want to grow, you have to spend extra cash. Equally, if your goal is to stay afloat, you have to work out the bare minimum required to do that.”
One area that’s unlikely to see budgets shrink in 2023 is technology, particularly automation. A Gartner survey found that 78% of CFOs will either allocate as much budget for technology as they did in 2022 or increase spending, even if the cost of living continues to go up.
Given the cost-savings automation can make, this stands to reason.
“In previous roles," says Patel, "I had up to 15 people doing payroll. Now I need a fraction of that number, even though the workload is broadly similar. The same goes with bookkeeping. Modern software links to your bank account and automatically categorises transactions, so there’s much less manual work.”
As far back as 2016, 65% of employees worried technology would make them redundant. The difficult economic climate in 2023 will likely heighten this fear and make employees more reluctant to engage with digital transformation projects.
As a result, dialogue will be more important than ever.
Research suggests that, far from having their fears confirmed, employees who use automation are happier at work and more optimistic about their career prospects. But, for the transition to succeed, you need to address people’s concerns head-on and make them feel like they have a say in the process.
On our podcast, The CFO Playbook, Enable’s Nick Rose put it this way: “To make technology stick, you need to bring people with you.”
Once they’re convinced technology will make their job less frustrating and more satisfying, rather than replace them, they’re more likely to buy into it and engage with the process.
With less money to spend, both individuals and business customers are becoming more discerning about who they buy from. And, increasingly, one of the key metrics they consider is sustainability.
70% of UK customers already assess businesses’ sustainability credentials before taking out their wallets. No surprise then, that ESG initiatives are high on CFOs’ agendas, with 48% planning to invest more money in them regardless of inflation.
Needless to say, the benefits of running a business more sustainably go well beyond attracting the growing number of environmentally-conscious consumers.
For starters, there’s a strong moral imperative. In the face of a worsening climate crisis, we owe it to ourselves and future generations to minimise our impact on the planet.
Studies also suggest that businesses that score high on sustainability metrics have more loyal employees, lower costs, and typically outperform the market in the medium to long term.
Sarah Reay, a climate change executive at ICAEW — the Institute of Chartered Accountants in England and Wales — says that CFOs are ideally placed to take ownership of the process and make sustainability integral to decision-making across the organisations they work for.
But, for change to be truly meaningful, they’ll have to overcome two challenges over the coming months and years.
First, while some jurisdictions — the EU, for instance — are making an effort to standardise ESG reporting, frameworks vary quite widely.
The inconsistencies between frameworks can make it hard to gauge whether a specific initiative is actually effective, or even to know what sustainability information to communicate to stakeholders.
Second, making your business more environmentally and socially responsible comes with a number of practical difficulties.
Case in point, Jitesh Patel observes, electric cars have prohibitively high upfront costs compared to diesel and petrol, so switching your entire fleet may not be financially feasible, particularly right now.
Plus, how do you make sure you compensate employees fairly if they charge their electric company car at home?
“I think everyone knows that 2023 is going to be tough,” says Patel. “Even just looking at overheads, they’re only going to go one way up."
“The flipside is that these things are cyclical. If you look at historical data, there’s a recession every twelve years or so. And, yes, some businesses don’t make it. But those that find a way to stay relevant emerge in a stronger position than they were in before.”
If you’re a CFO, this means being able to adapt quickly to change will be more important than ever.
“Visibility is going to be key,” concludes Patel. “You need to be aware of everything that’s going on in the business and question anything that doesn’t look quite right. It’s going to be a critical year for finance as a strategic function, that’s for sure.”
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