CFO strategies to stay profitable amid economic uncertainty

The state of the global economic environment since 2020 has witnessed rising inflation and growing interest rates — both increasingly intensified by heightened geopolitical tensions. 

From March 2022 to July 2023, the Federal Reserve raised interest rates a total of 11 times, with the current funds target rate remaining between 5.25% to 5.5%, the highest it's been in more than 20 years. A recent forecast from the research firm Gartner predicts that by 2027, earnings before interest, taxes, depreciation and amortization margins are expected to be down more than 30% relative to 2022, driven by inflationary pressures.  

These challenges, coupled with rising costs, weak cash flow and increased consumer debt, have set up CFOs for turbulence in the next three years, undoubtedly having to navigate unsteady financial conditions for the long term and do more with less. To maintain steady organic growth and decrease time to value, financial leaders must implement effective response strategies, including incorporating data and technology into finance processes, aligning on strategic business initiatives, and implementing an automated and simplified approach to financial management.  

Incorporating data and technology into finance processes 

According to the U.S. Chamber of Commerce, despite more Americans participating in the workforce today than in pre-pandemic times, the overall share of the population participating in the workforce has decreased. With fewer people and resources, as well as more ambitious financial goals, it's crucial for financial leaders to implement intelligent technology across their financial systems to ensure data is better managed for more informed key decision-making.

While CFOs have been cautious to embrace digital transformation previously due to the costly investments associated with implementation, the tide is turning. With 52% of CFOs prioritizing the adoption and use of technologies including generative AI and advanced analytics over the next year to both build predictive models and strengthen scenario analysis capabilities, it's clear financial professionals are turning to technology to bridge the resource gaps and drive value.  

Investing in these technologies now will be crucial to maintaining profitability, decreasing time to value and elevating the overall finance function. In addition to maintaining sustainable business growth and delivering improved customer experiences, CFOs are also tasked (now and in the coming years) with implementing solutions to target the growing threat of fraud. As reported in Alloy's 2024 State of Fraud Benchmark Report, nearly 60% of banks, fintechs and credit unions surveyed reported direct fraud losses of over $500,000 in 2023. In light of this, CFOs must leverage artificial intelligence and machine learning for real-time analysis of transactional activities across the business — enabling immediate detection and response to potential fraud threats.  

 Aligning on strategic business initiatives  

An estimated 60% of CFOs report that cutting costs remains a top priority for the finance function in the next 12 months, according to Big Four firm PwC. To set businesses up on a profitable growth path despite what analysts expect to be challenging years ahead, financial leaders must identify key barriers to operational success and align on future business initiatives with the entire management team. Also among the top challenges for CFOs is not getting a single view of their company's financial position and health. This is due to complex organizational setups, manual processes, incomplete and delayed data from business units, siloed finance functions and incomplete analytics critical to real-time decision-making.  

With access to greater financial visibility — made possible through the adoption of AI-powered technology to speed up everyday processes and increase data visibility — CFOs can better manage critical business functions for both the short and long term.  

Simplified automated approach to financial management  

As 2023 saw the global CFO turnover rate hit a five-year high of 15.9%, financial leaders are under increased pressure to deliver strong revenue growth. But the path to reaching this goal can be unclear, with poor financial reporting and forecasting systems within the business creating a large gap between the expected overall performance and the reality. Compounded with business complexities — including large ERP systems, multiple layers of people in finance teams and convoluted reporting methods — CFOs are unable to identify and mitigate underlying business problems.

To address these challenges and set businesses up on a profitable growth path, CFOs must return to basic cash flow management, understanding what money is coming in and out, where the cash is going, and easily identifying deficits in the working capital cycle. By implementing a simplified approach to financial management and leveraging automation for routine tasks, finance teams can build a plan around what the sustainable cost base should be based around current cash flows rather than a lofty growth plan. Going back to basics and leveraging a simplified financial approach will enable CFOs to create and implement a plan based on today's data, while adapting and evolving it for the future as business goals and needs shift.  

The projected economic environment for businesses from now until 2027 spells lower than expected cash flow and increased consumer debt, putting greater pressure on CFOs to adapt to changing conditions. However, as new technologies emerge and more financial leaders embrace digital transformation, businesses can be better prepared to navigate industry challenges for both the present and future.