The CFO’s role, in part, is to determine a company’s financial strengths and weaknesses and help make smart strategic decisions based on that analysis. They also have to consider the upcoming economic climate and how that will impact business. For CFOs in smaller companies, their responsibilities are likely to be even wider-reaching. And each industry has its own set of challenges that also affect CFOs.
Let’s look at the most significant concerns CFOs are projected to face in 2023 and what can be done to overcome them.
1. Finding and Keeping Talented Employees
According to a July 2022 study by Gartner, the biggest challenge facing CFOs for 2023 is hiring and retaining staff. The labor market has been difficult for businesses for some time now, and it is not expected to change in the upcoming year.
Inflation and supply chain disruptions will continue to impact profitability, making hiring and retaining top performers more challenging. Competitive salaries are only one of the things employees are looking for these days. Additionally, they want flexibility, as attitudes towards work have shifted post-COVID, and younger workers have greater work/life balance expectations.
CFOs must partner with HR on new ways to attract and retain talent, especially in critical roles. Technology has become increasingly essential in most jobs, so hiring people with those skills will be vital for future success. Technical prowess may proceed specific financial skills that could be taught after hire. CFOs should work with HR to ensure the company’s employment policies meet the needs of a modern workforce.
2. Forecasting
Forecasting is an essential part of a CFO’s job. Forecasts must be fast and accurate to identify issues before they become more significant problems. According to McKinsey & Company, CFOs must incorporate operational insights into the financial forecasting process.
They suggest four criteria for creating more reliable forecasts.
- Build a market-momentum case separate from the business plan that uses internal and external data and end-market trends to set realistic but aggressive targets based on market dynamics.
- Use a variety of operational and external inputs.
- Automate the forecast.
- Measure effectiveness to finite detail.
These criteria, implemented in the forecasting process, will render higher-quality data that can help you make data-driven business decisions.
3. Cutting Appropriate Costs
As inflation rises in 2023, CFOs will likely look to cut costs. It will be necessary, though, to ensure the correct costs are cut. To be proactive, keep track of what is spent every month and then update the budgets/plans quarterly. CFOs must cut expenses that will have the lowest impact on future business operations.
CFOs need to make unbiased decisions about what is best for the company. Large enough cuts that will jump-start performance should be made rather than smaller reductions that only lead to more cuts later. This is particularly important if cutting staff to lower costs, as the uncertainty of what’s to come will make employees uneasy.
Look at cutting costs that can be sustained long-term. If the company is considering a less expensive solution, a gap analysis should be conducted to determine what will be lost. Only commit to long-term contracts if it will help lock in a lower rate and no changes will be needed during the contract period.
4. Determining Pricing
CFOs have increasingly become involved in pricing as they bring valuable insights that can improve revenue and profit. Pricing correctly is essential to the health of a company. CFOs should develop pricing strategies alongside other key stakeholders. They must ensure prices make sense by researching competitors and determining what the market can bear. CFOs calculate the revenue figures and profit margins needed.
To support the pricing strategy, CFOs can analyze customer data to identify and quantify the value of products. They can also look at customer contracts to see if some customers should be charged more or less than others. CFOs can help set guidelines for discounts to make sure pricing is fair. They can also negotiate with more important clients to provide the best price for a product or service. If there are any growth initiatives, CFOs can review them closely to ensure they make sense and won’t harm the company’s bottom line.
5. Planning Company Staffing Levels
2023 is likely to have market uncertainty, and with the continued staffing challenges, companies need to have an agile workforce plan. CFOs should be involved with staff planning as they can help determine the investment required to implement the program by understanding the effect that the change in employee numbers will have on operating expenses, defining critical roles and the organizational structure, and evaluating how different workforce scenarios will impact margins for products and services.
With the difficulties businesses face finding and retaining good employees, workforce planning is more essential than ever. Employees are the highest cost for companies, and CFOs are integral to reducing risks and identifying future opportunities to ensure a successful workforce plan.
6. Digital Investment Achievements
As companies initiate digital initiatives, CFOs must determine their ROI. They’ll want to track the value they provide financially and operationally. Many companies will look to implement digital investments in 2023 to lower costs and increase productivity. It will be the CFO’s role to help determine what initiatives should be implemented based on current business needs and future goals.
Digital investments must be carefully tracked to understand how they benefit the company. KPIs should be assigned that will show their value over time. It will also be essential to ensure that staff is taking advantage of the functionality and are using any new processes to get the full impact of the investment.
7. Inventory Management
Excess inventory ties up cash, and insufficient stock slows production and upsets customers if products are delayed. Companies must keep the optimal amount of inventory on hand. Many CFOs have become involved with inventory management, and in 2023, with expected inflation and supply chain issues, their involvement will be critical.
CFOs need good analytics, efficient ordering processes, low holding costs, and a sound system for forecasting inventory needs. Ultimately, inventory management does not fall on CFOs, but they have a role in determining how to drive down inventory and increase cash flow.
Wrap Up
The CFO role has expanded to many things beyond finance. They are an essential contributor to ensuring company goals are met. CFOs must ready themselves for these significant challenges expected in 2023 to be successful.
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