CFOs in 2023 may want to think twice before planning for an end to the turmoil of the past two years.

A new variant of COVID-19 may flare up, inflation persists well above the Federal Reserve’s 2% target and geopolitical tensions, such as Russia’s invasion of Ukraine, loom large in even the most carefully crafted scenario planning.

The U.S. government is trying to curb many of the risks, with mixed results so far. One of its antidotes, as prescribed by the Securities and Exchange Commission (SEC), will require CFOs to spend more on compliance and plan for more disclosure and detailed risk management.

Other trends, such as a possible slide into recession, are beyond a CFO’s control.

Here’s a look at four of the trends for 2023. 

1. Close combat against inflation

Battling inflation is a core mission of the Federal Reserve. Since 2021, inflation has won.

Fed Chair Jerome Powell acknowledged early last year that policymakers underestimated price pressures.

In March, three months before the consumer price index (CPI) hit a four-decade high of 9.1% on an annual basis, policymakers began the most aggressive pullback in stimulus since the 1980s. Over the course of last year, they pushed up the federal funds rate by 4.25 percentage points.

Fed tightening reduced the CPI to 7.1% by November while also increasing the risk of recession. The probability of a downturn during the next 12 months is 65%, Goldman Sachs said Thursday, citing consensus estimates while adding that its own researchers see a 35% probability of recession.

Powell has repeatedly said the Fed will curb inflation even at the cost of setting back businesses and employment. But with price gains easing and the risk of a downturn rising, some economists fear policymakers in 2023 will pause or reverse course before bringing down inflation to their 2% target.

“What worries me is if inflation starts approaching 5%, they might let up and then we’ll see inflation shoot back up,” according to Aleksandar Tomic, director of the graduate programs in applied economics and applied analytics at Boston College.

Inflation this year will likely persist somewhere between 5% and 7%, Tomic predicted in an interview. “I don’t think there is any way we will get to 2% within 12 months without really bringing the economy down tremendously.”

Based on their median projections last month, Fed officials forecast that they will raise the federal funds rate by December to 5.1% — from a current range of 4.25% to 4.5% — before trimming the benchmark to 4.1% by Dec. 2024. They see the economy growing 0.5% this year and 1.6% in 2024.

Powell acknowledged that the forecasts are educated guesses at best. “No one knows with any certainty where the economy will be a year or more from now,” he said at a Dec. 14 press conference after the Fed released its projections.

Given the murky outlook, CFOs should avoid borrowing at variable interest rates or use swaps to hedge against rising rates, Tomic said.

Scenario planning is also essential when preparing for the future economic or monetary policy landscape, Tomic said, adding “whoever tells you anything with certainty is just lying to you.”

“This time last year, nobody thought Russia would invade Ukraine,” he said. “For many companies that turned everything upside down.”

2. Job openings go unfilled

Many CFOs eager to fill some of the economy’s 10.5 million job openings may need to keep “help wanted” signs posted well into 2023.

The tight labor market will probably persist for at least the next few months, according to Cristian deRitis, deputy chief economist at Moody’s Analytics.

“The dynamic in terms of demand exceeding supply is going to hold for a long while,” he said in an interview. “I don’t see a reversal of the trends there unless we go into recession,” he said, noting that Moody’s forecasts a “slowcession” of low growth rather than a downturn.

The unemployment rate in December fell to 3.5% from 3.6% the prior month as U.S. employers added 233,000 jobs, the Labor Department said Friday. The total number of available jobs was unchanged.

CFOs aiming to hire workers face several obstacles, including limits on immigration, an aging and shrinking labor force, and a trend of pandemic-induced early retirement, deRitis said.

Fed policymakers worry that the strong labor market will fuel wage pressures and worsen inflation by compelling companies to raise prices. Wages rose last year by 4.6%, according to the Labor Department.

“Wages are running well above what would be consistent with 2% inflation,” Powell said at a Dec. 14 press conference.

At the same time, compensation gains lagged inflation by more than 2 percentage points, prompting many workers to quit jobs for higher pay elsewhere and compounding wage pressures.

For some workers, “the only way for your salary to keep up with inflation is to change jobs,” Tomic said.

Eventually, as the Fed’s aggressive monetary tightening takes hold, unemployment will likely rise this year to 4.2%, deRitis said. Average monthly job growth will probably slump to around 75,000 from 370,000 in 2022, taking “some of the pressure off wage growth that we’ve been seeing that would certainly help the Fed’s case.”

Annual growth in wages may fall to between 3% and 3.5%, deRitis said.

CFOs leery of raising wages too much may want to consider providing workers with more job flexibility, including out-of-office work arrangements, deRitis said.

“It’s key for the employer to be creative in terms of the ways that they compensate employees,” he said. “I think you can build loyalty and high retention by having flexible policies.”

3. SEC demands disclosure

Since his swearing in as SEC chair in April 2021, Gary Gensler has laid out aggressive goals for increasing disclosure by public companies.

Investors need more information on companies’ cybersecurity, workforce diversity and vulnerability to crypto asset markets, Gensler has said.

Some proposed rules would shake up management by CFOs and their C-suite colleagues, compelling more detailed measurement of employee demographics and an overhaul in aspects of risk management, according to David Brown, a partner at Alston & Bird.

“We are forcing companies through disclosure to change the way they operate,” Brown said in an interview. “It’s extraordinarily ambitious.”

Gensler in March sparked criticism — and more than 14,000 public comment letters — after releasing a 490-page proposed rule that would require publicly traded companies to provide detailed disclosures on carbon emissions and climate risk.

The SEC aims to mandate that companies describe on Form 10-K their strategy toward climate risk, including plans to achieve any targets they have set for curbing such risk.

Companies would need to disclose data on their greenhouse gas (GHG) emissions, either from their facilities (so-called Scope 1 emissions) or through their energy purchases (Scope 2). They would also need to obtain independent attestation of their data.

Clear, uniform disclosures on the costs from climate change will benefit both businesses and investors, according to Gensler. Businesses will gain detailed insights into potential costs and opportunities, while investors will be able to better gauge risks at specific companies and compare risk levels across industries.

Companies, industry groups, lawmakers and asset managers — including BlackRock — have focused much of their criticism on the mandate that companies disclose in detail Scope 3 carbon emissions by their upstream and downstream suppliers and vendors.

Gensler has said the requirement would only apply to large companies that have already committed to Scope 3 measurement. Yet critics say the rule would impose onerous costs and challenges in measurement on small businesses, such as farmers, woven into the supply chains of big companies.

The SEC in coming months may sidestep opposition to the Scope III requirement and other controversial aspects of the proposed rule by rolling out the final regulation in two phases, Brown said.

In the first phase, the agency would require measurement and disclosure of Scope 1 and Scope 2 emissions and details on climate risk, including how the C-suite and board track and manage such risks, Brown said.

In the second phase, companies would need to gain external assessments of their GHG emissions and climate risk calculations, and report measurement of climate risks on their 10-Ks, Brown said. As part of this phase, large companies that made prior pledges to disclose Scope 3 emissions would be required to do so.

In a two-step approach, “people still may challenge it, but there may be less of a chance that the challenge is successful,” Brown said.

Despite opposition, the SEC will push forward with the regulation, he said. “I don’t think there’s any chance whatsoever that they’re going to shelve it.”

4. Sharper accounting oversight

The implosion of crypto exchange FTX and absence of financial controls revealed in its bankruptcy filings — such as the use of emojis in an on-line chat platform to approve disbursements — will sharpen scrutiny of the accounting industry and its standards this year, experts say.

While some accounting experts are quick to note that regulations won’t prevent those who flout the law from harming investors, others say the FTX failure will likely intensify efforts by regulators to avert failures in accounting and financial reporting.

Soon after FTX collapsed in December, the SEC called on companies to fully disclose crypto asset risks, joining efforts by lawmakers, investors and creditors to gauge the crypto market’s vulnerabilities.

“We don’t know where FTX is going to fall out … it’s a period of time where we’re trying to see where all these things are going to land,” Kecia Williams Smith, an accounting professor at North Carolina Agricultural and Technical State University, said in an interview.

The blowback from FTX, although big, will probably not prompt the same sweeping changes in accounting and financial reporting that followed the Enron accounting scandal, she said. “We’re tiptoeing on the precipice but I don’t think we’re back at Enron proportions.”

But the failure of FTX, which owes more than $3 billion to its top creditors, will undoubtedly spotlight for the Financial Accounting Standards Board (FASB) the problems it needs to address as it sets standards for crypto-currency this year, according to Kelly Richmond Pope, an accounting professor at DePaul University in Chicago.

“This fraud is so egregious it’s forcing you to see how bad it can actually be and how negligent founders and CEOs can be,” Pope said. FTX “gives [FASB] something to dissect … We need to see this so we can set up the right protocols for us to follow in the future.”

The FTX debacle played out late last year as CFOs and their finance and accounting teams were already facing sharper regulatory scrutiny of financial reporting and a push for more disclosure.

The FASB begins 2023 with many ambitious projects carrying over from 2022. In addition to crypto standards, it also plans to revamp outdated accounting for software and is poised to beef up the income tax information that companies would be required to disclose in financial reports.

The board is also making the most sweeping segment accounting change in 25 years — a move that would require companies to require more frequent and comprehensive data broken down by business units.

Meanwhile, the Public Company Accounting Oversight Board (PCAOB), under its new Chair Erica Williams, pledged in its 2022-2026 draft strategic plan to increase average penalties and enforce some rules for the first time.

Intensified enforcement will persist in 2023, Smith predicted.

“CFOs who are trying to have a good 2023 just don’t want to be on the bad actors list,” Smith said. To avoid sanctions, finance chiefs should work closely with their audit committees and keep in close communication over changes in disclosure requirements and other matters.

“The common theme … is making sure the company’s disclosures are transparent and not misleading to investors,” Smith said. “The preventative measure is to always have investors top of mind, because that’s the kind of enforcement actions we’re seeing.”

The current bout of inflation — as portrayed by Federal Reserve policymakers — was supposed to be a brief flare-up that quickly flickered out.

Instead, red-hot price pressures have scorched U.S. companies for nearly 20 months, with no clear date for a cooldown.

Consumer demand surged after a sharp pandemic-induced recession. Lockdowns and a tight labor market stoked wage gains. Prices for oil, grains and other commodities soared after Russia’s invasion of Ukraine.

Among all the causes for the spike in prices, disruptions to supply chains raised the earliest alarm among economists, including those at the Fed.

Some measures, such as one created by the New York Fed, suggest that bottlenecks in the flow of goods have started to clear up. But the gains have yet to show up in inflation data: The Consumer Price Index rose 7.7% in October compared with the same month last year.

“Inflation has largely been due to troubles with supply chains and it’s taken way longer to unfold and resolve than one would have thought,” Itamar Drechsler, a professor of finance at the University of Pennsylvania’s Wharton School, said in an interview.

“In regular times, our supply chain issues would not have been anywhere near as big of a deal,” Drechsler said.

Economists differ about when the Fed will achieve its goal of pushing inflation down to its 2% target, but agree that a smooth movement of goods through supply chains is essential for a steady decline in price pressures.

“As long as we have supply chain issues, it’s going to be hard to bring inflation back down to 2% or 3%,” Drechsler said.

For many CFOs under 50, rapidly rising prices were once a relic from their parents’ past, as quaint and unfamiliar as sideburns and bell bottoms. They may have only heard vague references about how double-digit inflation repeatedly savaged U.S. companies from 1974 until 1981.

High inflation upends CFOs’ strategies for prices, wages, capital allocation and other factors determining profits, while also straining their relations with vendors, customers, employees or shareholders.

CFOs suggest buffering against the worst inflation in nearly 40 years — along with recession risks as the Fed raises borrowing costs to cool the economy — by taking four steps:

1. Conserve cash

Amid persistent price pressures and increasing forecasts of a downturn, “conservation of cash is on the minds of CFOs for sure,” according to Brian Prantil, a supply chain management expert at Insight Sourcing Group.

Like many companies, the software firm CallRail faces price pressures on many fronts, including in negotiations with vendors and in adjusting employee pay and benefits, according to CFO Jim Morgan. The company provides call tracking and marketing analytics software to more than 34,000 small- and medium-size businesses.

“Most finance folks I’m talking to are taking a very conservative and prudent approach going into next year,” Morgan said in an interview. “We have a plan that is generally more conservative than usual.”

CallRail is comparatively well positioned for a downturn because of its longstanding conservative approach to cash, Morgan said.

“We never burned capital,” he said, adding “we don’t have to think about raising capital in 12 or 18 months.”

CallRail currently seeks a balance between attracting talent, identifying targets for mergers and acquisitions and investing in software innovation behind new features and products, Morgan said.

“We talk in terms of ‘what’s the best use of the profits that we create, how are we going to look for opportunities,’” he said.

Similarly, Fetch Rewards, a shopping savings app, also feels an impulse to make the most of its cash, according to CFO Nupur Sadiwala.

“Cash preservation is top of mind,” she said in an interview. “Once you hit the recession environment, funding could get more challenging.”

Fetch Rewards completed a Series D fundraiser for $240 million this year before recession forecasts began to pile up. Still, the prospect of a downturn has sharpened its focus on funding priorities, Sadiwala said.

“This helps give the company a little more discipline” and “makes every investment that much more critical,” she said.

2. Step up cost-cutting collaboration

With inflation high and supply chains clogged, CFOs can often improve cash flow by working closely with their company’s procurement team to realign prices with any increase in input costs, Prantil said.

A CFO can often trim costs by as much as 15% by pushing for a review of the volume or technical specifications of purchases, Prantil said in an interview.

“You should challenge all the things that you’re buying and ask, ‘Why are we buying it? Can we buy something different? Do we have too many of these on the shelf?’” Prantil said.

“There’s a lot of opportunities when you just look at what you’re already buying in a different way,” he said.

A critical review of outsourced services can yield similar savings, Prantil said. For example, many companies that allow staff to work from home have cut costs by reducing janitorial work to less than five days per week.

“CFOs tend to see procurement staff as identifying suppliers rather than optimizing suppliers,” Prantil said. “They should look to their procurement professionals as strategic partners.”

At CallRail, C-suite executives promote collaboration by urging employees at every level to “mind the business,” Morgan said, citing a longstanding company slogan. “We double down as business partners,” he said.

“In an ideal world I want everyone to be thinking like the finance team,” Morgan said. “It allows the right framework to be everywhere without finance and accounting having to be in on every decision.”

CallRail underscores in employee meetings that “we’re all business owners,” he said, adding that the company backs up the principle with an equity sharing program.

“We get a lot more leverage out of promoting that idea than just having a couple of people trying to say, ‘Look, you’re spending too much or we need to cut back in these areas.’”

A unified mindset is especially important as CallRail adjusts to the turbulence from inflation, Morgan said, noting that most employees have never encountered rapidly rising prices.

At monday.com, top executives emphasize to staff during monthly meetings that, in the face of high inflation, employees need to discard some long-held assumptions about the market and broader economy, CFO Eliran Glazer said. The company provides project management software.

“We explain inflation and say, ‘Guys, this is a completely different environment throughout the world,’” Glazer said in an interview from company headquarters in Tel Aviv.

“People don’t even know what ‘inflation’ means!” he said. “So definitely — education, education, education.”

3. Be nimble

CFOs saw first-hand the value of agility in 2020 when the sudden onset of COVID-19 forced lockdowns, spurred a “dash for cash” by companies across a range of industries and plunged the U.S. economy into its sharpest recession ever.

“CFOs learned over the past few years that flexibility is key, and that uncertainty demands flexibility and an even keel through choppy waters,” Morgan said.

CallRail has heavily invested in the technology for near real-time tracking on customer use of its platform, Morgan said.

“It used to be overnight data was OK,” he said. “Now, in the world of analytics, if we can get fresh data in a few hours, we can probably keep the rest of the organization happy.”

Agility is essential for monday.com as it hedges against turbulence in currency markets, Glazer said. The company generates 30% of its revenue in the U.K., Australia, eurozone and other regions outside the U.S.

Adapting to the strong dollar poses a challenge and opportunity, he said. The U.S. Dollar Index — which tracks movement of the greenback compared with a basket of six major currencies — has surged more than 12% this year.

Currency volatility poses a potential revenue setback as high as 3% for monday.com, Glazer said. “A foreign exchange loss is not a business expense or an operational expense, so you don’t want it to lead your P&L numbers on a regular basis.”

While posing challenges, market turbulence and efforts by the Fed to curb inflation have opened up opportunities for monday.com as well, Glazer said.

For example, yields on U.S. debt have increased as the Fed raised the federal funds rate this year from near zero to a range of 3.75% to 4%. Seeking a low-risk return, Glazer invested some of monday.com’s $830 million in available cash in U.S. bonds.

4. Don’t panic

By setting realistic expectations, a CFO can help employees deal with inflation-induced stress vented by shareholders, vendors and other stakeholders, the financial executives said. Along with inflation, risks such as the war in Ukraine and slowing growth in China cloud the outlook.

“As the CFO, you have to be in the front seat — you have to lead and be proactive rather than be worried,” Glazer said.

As headwinds shift, monday.com regularly updates its range of projected scenarios for coming months and adjusts its planning, Glazer said.

Every month he leads his 50-member team in a review of factors, such as cash flow, currency volatility and revenue and expenses. He is wary of making hasty decisions about reducing payroll or cutting spending on innovation or marketing.

Glazer expects that inflation during the next three years will probably not fall below 5% but cautions against a narrow focus on price pressures. “Don’t let inflation dictate how you look at your numbers.”

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By Vic.ai

In 2022, CEOs got a demotion. They might not be aware, but there has been a shift in the C-suite when it comes to decision making.

Who is the new boss in town?

As the number of roles reporting to the CFO continue to increase, finance leaders have gained the trust of their colleagues, leading to their highly deserved promotion. Hiring, technology investments, and other decisions are being delayed, denied or approved by CFOs who now have the final say. With a looming recession, investors, boards of directors, and even CEOs (whether they realize it or not) are looking to CFOs as trusted advisors to navigate turbulent water ahead.

The economy is contracting, and borrowing is more expensive than it has been in over a decade. As more and more signs point towards an economic downturn, investors and executives alike aren’t just reluctant to invest in new projects – they’re in full-on cost-cutting mode. However, research has shown that cutting technology investments during the 2008 crisis caused companies to lag behind competitors, causing slower recovery.

According to a McKinsey & Company global survey, the use of robotics and artificial intelligence (AI) in the finance function has more than tripled since 2018. These investments have paid off. Nearly 60% of CFOs reported experiencing positive or very positive ROI, even through the global pandemic. Survey results also show an impact on company resilience. As adopting AI, advanced business/finance analytics, and data visualization have increased, CFOs express feeling significantly more prepared than before COVID-19.

It’s no surprise that the cost of investing in new tech and a lack of internal skill sets to implement solutions are the top factors preventing finance leaders from taking the leap into digital projects. However, due to rapid innovation, the challenges around deployment and cost of adopting AI have both decreased dramatically in recent years, proving positive returns. Taking into account the cost of inefficient tools that require millions of dollars towards headcount to maintain, leveraging AI to offset those costs and increase your bottom line is a no-brainer. 

Looking for new reasons to brag to your fellow finance colleagues? Here are four ways you can help your company thrive and decrease risk for true ROI through AI: 

Prioritize urgency and ROI

As belts tighten, CFOs must weigh where to invest that will guarantee the best and quickest returns. The key is to urgently identify areas in the company where the most value can be created and focus investments there. For a company spending hefty amounts on offshore teams that handle accounting data entry, this could be an area where resources could be optimized by delegating to AI.

AI can be used to automate repetitive tasks, allowing you to reduce overall labor costs. As an example, invoice processing and manual data entry are expensive. You can quickly reduce labor costs by hyper-automating the AP process, from reading invoices to approving payments and beyond.

AI can also be used to improve efficiency and productivity. By automating repetitive or time-consuming tasks, you can free up your employees to focus on more value-added activities, which help improve overall productivity.

When evaluating urgency and return, you’ll discover that certain AI technologies promise faster than ever ROI in terms of both savings and time—as few as six months in the case of autonomous accounting. 

Minimize risk

AI-powered automation technology can reach up to 99% accuracy, surpassing human accuracy as well as traditional rules-based automation (RPA). This minimizes the risk of costly reporting errors from manual data entry, and allows you to optimize operational cash and create a competitive advantage over other, less digitized, companies. True AI solutions, which continually learn from a company’s data and become increasingly accurate with time, are the holy grail of ROI and risk mitigation.

Work intelligently

AI gives CFOs unique visibility into their data across business units and provides never-before-accessed data insights. This enables finance leaders to make better decisions in real time, instead of after the books have closed. If a finance team manages 40 retail locations with more than five separate ERPs, dispersed data can slow financial reporting down. AI paired with data analytics can speed up processing and centralize the operation for better visibility.  It’s easy to work smarter with the right technology that aligns with your processes and efficiency goals, eliminates duplicate payments and captures early discounts.  

AI and its data insights can also help you better understand your customers to anticipate their needs. By analyzing customer data, you can gain insights into what customers want and tailor your products and services accordingly. This can help increase customer satisfaction and loyalty, which are key factors in maintaining a strong customer base during an economic downturn. It can even guide further development of products. 

Attract and retain talent

New tech solutions like AI are also a boon for attracting and retaining talent— which pays dividends down the road. During this costly period of high turnover and increasing labor costs, the power of technology to improve recruitment and employee morale should be taken to heart. By adopting AI solutions, you can free up team members for more strategic tasks, all while increasing output and accuracy.

Just as companies are anxious about how the economy will impact them, employees are also looking to create a competitive advantage to sustain their careers. Upskilling is a proven way for employers to add value to roles. AI is a hot trend that is touted as a thing that will make our lives easier— from self-driving cars to Gmail finishing sentences for you. Stakeholders of accounting firm customers have said their employees request to use AI accounting when servicing their customers. As AI in business is becoming the norm, AI skills will be increasingly required. 

As the role of the CFO has become more crucial than ever, AI can help businesses survive economic obstacles and come out on top. Investing wisely enables you to emerge from any oncoming recession more effectively and efficiently than ever before.

While the potential risks of a coming economic downturn are “very high,” factors such as the strong labor market and loosening pressure on supply chains could see the U.S. economy narrowly missing a recession, Julia Coronado, president and founder of economic research firm MacroPolicy Perspectives said during a panel discussion Tuesday.

“I have the U.S. economy skirting a recession — I don’t have recession as a baseline,” she said, speaking during a media event on the results of a survey on risks top of mind for business leaders conducted by global consulting firm Protiviti and NC State University. 

Coronado, a former Federal Reserve economist who served an eight-year tenure at the Fed beginning in 1997, according to her LinkedIn, currently serves as the president of National Association of Business Economists (NABE).

A NABE survey of 51 professional forecasters released Monday found the odds of a U.S. recession exceed 50%, with a downturn most likely to begin in the first quarter of 2023. The recession is likely to be mild, according to the NABE survey, with the U.S. economy set to recover and expand 0.3% for the full year.

Economic uncertainty was the second-highest rated overall risk for 2023, the 11th annual Executive Perspectives on Top Risks for 2023 and 2032 found, with concerns regarding inflation and a recession abounding. The survey includes insights from 1,304 board members and executive leaders surrounding their top risk concerns — out of a list of 38 risks — both for the upcoming year as well as ten years in the future.

Fears surrounding central bank policies, persistent supply chain challenges and rising labor costs have dampened executive sentiments for the economy, according to the survey, alongside concerns over a potential recession which could occur early next year. 

Relaxing supply chain pressures, a shift back to service-based spending by U.S. consumers, and a robust labor market — the unemployment rate is hovering around 3.7% — are all factors that could see the U.S. economy narrowly miss a recession, Coronado said.

“It’s really hard to tip the ocean liner of the U.S. economy over, so I think it’s going to be a tough year, a volatile year, but companies are hard at work trying to manage these risks, and we’re making progress, so I’m relatively optimistic compared to some of my peers,” she said.

Coronado also pointed to a Nov. 30 speech by Federal Reserve Chairman Jerome Powell, who indicated the Fed will likely slow the pace of tightening in coming months in a bid to hopefully achieve a soft landing. The Fed has hiked interest rates 3.75 percentage points thus far this year in a bid to clamp down on inflation.

Concerns over economic uncertainty stretches out beyond 2023 for executive leaders, however, according to the Protiviti survey. Economic conditions that could potentially restrict growth opportunities came in as the eighth-highest overall risk cited by board and executive leaders for 2032, according to the survey. 

The risk that was top of mind both for 2023 and for executives’ 10-year outlook concerns talent retention, however, according to the study. The ability to attract and retain top talent was the top rated risk both for 2023 and 2032, according to the survey, as executive leaders struggle with the changing future of work, the role of emerging technologies such as automation and artificial intelligence (AI), and rising labor costs.

With many economists predicting an imminent recession and sluggish consumer spending, CFOs need to be prepared to weather the storm.

“We are headed into another change,” Sharon Bhalaru — partner at national accounting and consulting firm —Armanino LLP — said in an interview with CFO Dive, noting that many companies are right now wrestling with a difficult period marked by volatility, uncertainty, complexity and ambiguity--the concept known as VUCA. 

While the Great Recession from 2007-2009 was fueled by the collapse of the housing market, this time around it is “a little bit unique because we're in this post-pandemic world, and one of the things that is going to be very different in this economic downturn is really the focus on the people's side of things,” Bhalaru said. 

But Bhalaru sees technology, and Enterprise Resource Planning (ERP) — software used by a company to manage key parts of operations, including accounting and resource management — as a key means of getting CFOs and their respective organizations through the looming recession because the systems enable companies to integrate and track all of their financial metrics under one roof, or that is, under one business application. “ERP solutions and business applications are really there to help executives understand the health of their business and make better decisions,” said Bhalaru. Here are three main ways she sees ERP as a key tool in a downturn: 

Empowering operations

Empowering operations — or tracking the money coming in and the money going out — is totally dependent on data, Bhalaru stressed. “When you have vendors that you need to pay, having the data and understanding what it is exactly that you're spending, which products you’re buying, will really help reduce the money going out of the business,” she said.

When it comes to accounts receivable, Bhalaru explained that because CFOs are very cautious about cash flow, an ERP system can be helpful with timely invoicing and getting those invoices out to customers, while also tracking how the money comes back in. 

With finance chiefs’ responsibilities growing, the financial and accounting realms are only a portion of the job. ERP systems allow those sitting in the CFO seat to have data at their fingertips. “These systems allow for there to be a single source of truth in data,” said Bhalaru. 

“Many times we work with executives, and they'll be in a conference room debating about what data is the right data, and that is a waste of time,” she said. Focusing on the right data allows CFOs to look to the future challenges they need to navigate, the geographies they need to invest in and the talent they need to hire, Bhalaru explained. 

Moving to the cloud

CFOs often lead these digital transformations at their respective organizations, so they see what they need for their accounting systems as front and center, said Bhalaru. “Having closets and physical locations to store information has really gone away,” she said. 

Having a single source of data and information is essential for businesses, and moving ERP systems to the cloud allows for access from anywhere. “We're seeing a lot of CFOs and executives come to us looking to move into the cloud, and asking what does that roadmap look like? They're being very deliberate and they understand that it's not an easy undertaking,” said Bhalaru. 

Digital transformation and ERP systems also play into talent retention concerns which are top of mind for CFOs right now as well.

“I’m noticing a lot of my clients are coming to me asking for automation so that their employees don't have to do mundane, boring, routine tasks that a system or digital worker can be automated to do, while they can focus their energy on serving their clients or being innovative and doing value add work,” explained Bhalaru. 

Re-imagining the people strategy

During economic uncertainty as such we are experiencing today, “we encourage our CFOs and our executives to re-imagine their people strategy and to not lose focus on improving the employee experience and the employee journey,” said Bhalaru, and ERP systems can help CFOs achieve this. 

As we have seen, things like attracting and retaining talent — which Bhalaru sees as a key metric to look out for in the midst of a looming recession — have remained top of mind for CFOs. ERP systems can track the lifecycle of an employee, as well as subcontractors, from hiring to retiring. “In an ERP, you can also align employee skills so you make sure that people have the right skills for the role and are able to help them upskill through certifications and training programs,” said Bhalaru. This idea of upskilling can also save businesses in turnover costs. 

CFOs of early-stage biotechnology firms get a lot of practice in the art of raising money.  

No matter the market cycle, they must find capital to fund costly research that will ideally lead to new drugs or treatments that generate revenue — and turn them cash-flow positive.

Finance chiefs at pre-revenue companies must tamp down cash-burn as much as possible, get employees paid and keep labs operating while continually building a funding runway. “The minute we close one financing, you have to start thinking about the next one,” Scott Praill, CFO of San Diego, Calif.-based Kintara Therapeutics, said in an interview. “That’s always on your mind.” 

In San Francisco last week many biotech executives got a chance to pitch their firms either at or on the sidelines of the annual JPMorgan Healthcare Conference and the Biotech Showcase Conference. But biotech is a harder sell than it was early in the pandemic. Overall healthcare venture capital funding dropped down to $21.8 billion last year compared with the record $28.3 billion record hit in 2021, according to Silicon Valley Bank’s 2022 Healthcare Industry Trends report.  

CFO Dive talked with three biotech CFOs about the current financing cycle and the strategies they’ve developed over the years for keeping the funds rolling in.

Escaping warrant overhangs

San Diego, Calif.-based Kintara is focused on developing new solid tumor cancer therapies to treat brain cancer. Because it’s publicly traded it has an extra financing lever: stock offerings.

But while it’s usually possible to raise money through various cycles, in challenging times the capital doesn’t always come at terms you can live with, Kintara’s CFO, Praill said. 

Currently most stock offerings come with warrants which give the holders the chance to buy shares of the company at a certain price in the future. That exposes the company and existing shareholders to a so-called warrant overhang, a term that refers to the prospect of a potential dilution event on the horizon.

“There were tons of no-warrant deals done during COVID. Then things got tighter and investors now want more upside,” Praill said. In the wake of that shift, the company is looking to raise money through other non-dilutive sources, he said. 

For example, they are looking to partner with other companies, considering pursuing convertible debt and making a more focused effort to obtain federal grant funding. “That’s our point of emphasis, the non-dilutives,” he said. 

Despite the advantage of being able to tap public markets, Praill advises companies to weigh the cost of going public. It’s expensive to meet all of the requirements of being a public company, he said. Separtely, once you’re at the funding trough, Praill advises companies to secure more than they think they need. “Raise as much as you can when you can,” he said. 

Shifting to a rolling close 

Salt Lake City, Utah-based Halia Therapeutics is a clinical stage biopharmaceutical company which is developing medicines that treat diseases characterized by chronic inflammation. 

Halia CFO Jeff Burton is currently in the process of raising a $50 million series C round — the biggest preferred round the company’s ever done. That effort has been complicated by two factors. 

One is that the firm has sought to focus on raising money from high networth individuals and family offices rather than going the venture capital financing route. The company prefers to averting the loss of control that sometimes comes with venture capital money, he said. 

The second is the volatile market itself. Burton had originally planned to have two closings for the series, one in December and one in January or February. But as last year progressed, some investors had deals of their own delayed that they needed to close in order to free up cash. Others had tweaked their own investment strategies as market brightened.

For example, one of the firm’s big investors, comprising about 10% of the round, asked to contibute their funding in January rather than December as planned. Burton agreed and then made the decision to switch from two fixed closes to a rolling close to accommodate the shifting market. 

A decision like that can make it harder to show the kind of momentum that is key to building confidence with other investors, he said. But Burton said he’s still on track to close the round in the next few weeks which would gain him enough runway to fund operations and clinical trials to the end of 2025. 

It helps, he said, to have started the prospecting with a time cushion built in. Even without the latest funding completed, Burton said he would have had enough capital to finance the company through this year and into 2024. “We didn’t wait until the last minute,” he said. “We were mindful of our cash and mindful of the runway.”

Reopening a round

Teresa McRoberts has worked through numerous cycles over the course of her career in the biotech and pharmaceutical sector, including in the 1980s and 1990s as a vice president at JPMorgan when she was on the other side of the financing table.  

When McRoberts joined the Austin, Tex.-based cell-therapy company Triumvira Immunological about two years ago, she had a front row seat to the latest biotech downturn that has delayed the private company’s plans to go public.

“I joined basically at peak of the biotech market in 2021,” McRoberts recalled. “We had a term sheet and were midway through syndicating a series B and then everything just stopped and the biotech markets started going down.

She says the company will ultimately go public when both it and the market are ready. But these days, a good idea is not enough and companies need to show they can execute and deliver on a concept. McRoberts is hoping the company will have some key data in hand in the first part of this year to help draw more interest from investors.

Still, McRoberts didn’t let the chilled appetite for biotechs stop the company from moving forward. Instead McRoberts found an alternative route. Triumvira extended its financing runway by reopening its existing Series A round. “With existing investors, the easiest way for them is to simply reopen a vehicle they’ve already used,” McRoberts said. 

Two of its longer-term investors, Leaps by Bayer and Northpond Ventures, took part in an initial Series A that closed in 2020 and were part of a second financing in 2021, according to a spokesperson for Triumvira. In late 2021 and 2022 there were two additional tranches that also included another new investor. By March Triumvira announced it had completed the extension of its Series A financing, valuing the funding at roughly $100 million.  

As for advice for other biotechs, she says the fundraising process requires patience. “It’s a lot of work and it’s somewhat repetitive talking to people and sending out slidedecks and telling your story over and over again,” McRoberts said. “You’re going to have to talk to a lot of people to find a few key investors.” 

Scenario planning has always been a key tenant of the CFO position, with today’s financial leaders faced with the challenge of both navigating current economic headwinds while also positioning their firms to respond flexibly to future trends.  

CFOs always need to make sure their organizations have the “wherewithal to be able to react to whatever might come,” said Russ Porter, CFO and SVP, strategy, technology and analytics for the institute of Management Accountants (IMA).

For some, that means focusing more intently on liquidity, and for others, specifically financial leaders managing tight margin businesses, that means being able to ramp operations up or down in response to economic conditions, Porter, a 28-year veteran of technology firm IBM, said in a recent interview.

“It's a constant balancing act, especially if you've got a business model that is very sensitive to economic conditions — you've got to be ready to pivot on a dime,” he said.

Successful scenario planning means CFOs must look both forward and backward in order to ensure their businesses can respond quickly when needed.

“I joke about CFOs being time travelers,” Porter said. “Because we spend some time looking at the past, making sure that our reporting process is right, making sure that we understand what has happened in our business.”

Balancing inflation, strategic futures

The focus for the next six months will likely remain on inflation, Porter said — many CFOs have only seen low-inflation environments, however, and they must be ready to prepare for a potential recession if it comes and for how their business models can adapt to such an environment.

Though certain economic factors indicate the rate of inflation may be slowing — the Consumer Price Index rose 7.7% in October compared to September’s 8.2% increase, according to the Labor Department — the “specter of inflation is not going away,” Porter said.

Porter pointed to continued tightness in the supplies market as well as continued instability in global markets such as Europe as factors that could potentially lead to greater inflation or economic upheaval.

All of these factors mean CFOs need to remain vigilant regarding inflation, Porter said. CFOs must be able to continue to plan for the event that inflation will continue to tick up at a “stronger pace than most of us are used to, but also be ready if suddenly, environmental conditions change and inflation backs off substantially back into the low single digits,” he said.”

Yet it is also important for CFOs to avoid inflation tunnel vision —“time-traveling” CFOs also have the advantage of being able to think about “what's going on six months, a year, two years and five or 10 years into the future,” Porter said.

“The farther out you go, you're going to have lots of scenarios because lots of variables can affect your business,” he said, “But as those horizons get closer, it really comes down to…the number of things that are going to affect me two years from now is much larger than what's going to affect my next six months.”

CFOs should therefore “be spending the vast majority of their time thinking about the future,” he said, noting today’s financial leaders are spending more time thinking about their companies’ strategic futures. Putting a five-year horizon in place allows financial leaders to set up the company for success, as smaller changes made now with that plan in mind can have “a big, big impact on our business five years from now,” he said.  

Driving large-scale strategy

Successfully maintaining the scenario planning balancing act has always made the CFO role a difficult job, but financial leaders’ position in the company structure also means CFOs have a “unique ability to see across the company, and to see how changes or initiatives in one area of the business…will affect other parts of the company in terms of efficiency and effectiveness of the overall organization,” Porter said.

“We are one of the few people in the company whose scope and remit crosses the whole company,” Porter said.

He pointed to areas such as labor and compensation where a CFOs’ holistic viewpoint can help the company navigate challenges.

Talent shortages and retention remain a top concern for financial leaders as the labor market has stayed red-hot. This means companies need to ensure they are both keeping costs down as they prepare for an economic downturn while also being able to keep their current workforce satisfied — an area where CFOs’ wide-ranging view on company operations can be key.

CFOs and companies may be able to offer benefits such as remote work flexibility or childcare arrangements to their workforce, for example, which may “convey the equivalent of an increased salary in the minds of their staff, but don’t come with the same dollar value cost.” Porter said.

“There's a lot that can be done and it's important that CFOs really partner with their HR colleagues and partner across the business to understand what their people really want,” Porter said.