How CFO’s Can Maximize Their Impact In a Time of Economic Uncertainty

Written by Jason Mountford
October 24, 2023

The world of the CFO is changing. More and more, you’re seen as a strategic partner to the CEO – you question plans, unlock new sources of revenue, and deftly manage liquidity to hedge against risk.

Liquidity management in economic uncertainty requires you to help manage risk and makes your role one of the most important in your company. It’s also why it’s so important that you’re empowered and resourced in a way that allows you to do your best work. 

Though predictions of a recession are way down from a year ago, there’s still a lot of (understandable) anxiety. In light of that economic uncertainty, 90% of company leaders consider the CFO more important than ever.

In other words, leaders are depending on the CFO to guide the ship through turbulent financial waters. Whether that’s optimizing working capital, identifying and patching up vulnerabilities, or even knowing how to respond to crises before they occur, expectations are high. 

As you’ll see, the key to meeting those expectations is tech – more on that later. First, let’s look at the most important asset companies can have when crisis strikes: agility.

The Importance of Agile Liquidity Management in Economic Uncertainty

When it comes to financial crises – or even just financial uncertainty – your number one concern will be liquidity. Namely, not running out of it. Sales drop off, supply chains become disrupted, inflation goes up, and, suddenly, your cash runway – which yesterday seemed as long as the Nile – starts showing cracks and getting shorter and shorter.

Nowhere was this clearer than back during the pandemic. We saw companies scramble to boost their working capital by cutting capital expenditures, or even reducing headcount.

But think about it: many of them didn’t even have a clear view of their cash position in March 2020. Before they could do anything, they had to attain that. How long did that take them? Days? Weeks? 

Once they did have that view, they’d have to spend even more time assembling cash flow forecasts from scratch, trying to determine how specific actions would affect their overall working capital. They lacked agility, and it all began with a lack of visibility. You would think off the heels of the pandemic, finance departments would have better visibility into cash flow. Yet, Gartner data shows that 54% of finance departments still struggle to provide reliable data and reports to their stakeholders to inform business decisions.

liquidity management in economic uncertainty

Consistently tracking cash flow is an ongoing struggle for many finance teams. Especially if the company has many bank accounts spread across continents and currencies. Throw a crisis on top – where insights gained from historical data can’t be counted on – and it seems just about impossible.

Fortunately, there is a way to gain the visibility you need to stay agile and mitigate risk. How can you do it? With open banking APIs.

Attain Visibility with APIs

APIs allow treasury management systems to connect directly to your company bank accounts, no matter how many you have, recording transaction data as those transactions occur

This means it’s possible to have a complete view of your financial position in one, centralized location. One login, one dashboard. Your strategic command center. From there, you have an overview of your situation, but also the ability to dig deep into specific aspects you want to focus on  – exactly what you need to make quick but informed decisions if crisis strikes.

liquidity management in economic uncertainty

As a finance professional, you probably know just what it’s like to try and attain a cash position with spreadsheets. It can be done, sure, but it’s going to take some time. In the midst of a crisis, by the time you’ve actually put all the information together, the situation could have completely changed. Certainly if you’re a large company, with many moving pieces and transactions per day, it will have.

The information gathered could also contain errors, leading you in the wrong direction – the last thing you need when the company’s in a tough spot and you need to manage liquidity tightly.

When a crisis strikes, you want to be able to respond right away. That means understanding where your cash is, what cash flows are being disrupted and – critically – being able to move cash from a centralized platform.

Modern treasury management platforms allow you to instantly view cash by entity, region, or currency. No need to log into many separate bank portals to understand your breakdown. You can then move money as needed from that centralized platform, with the payments function.

Move Money

The ability to move money quickly is just as important as being able to see it.

A modern treasury team or CFO needs accession to payment functions that lets them manage money with classic bank rails like ACH or wire transfer, as well as newer ones like RTP. That last one can be especially critical in having a flexible liquidity management strategy.

liquidity management in economic uncertainty

With RTP cash can be moved immediately, and that means operational flexibility – the ability to rapidly adjust production, supply chain, or distribution strategies can be invaluable in a crisis. If one currency is particularly affected by a downturn, you can also hedge more quickly against currency risk. The ability to make fast payments allows you to cover essential operating costs, or even buy up distressed assets or investments. 

Forecast Cash Flow

Alright – let’s back up for a second. Remember how we said that, once you attain cash visibility, you can make quick decisions? To make the right decisions, you’ll need a quick way to see how they’ll affect your cash position.

That’s exactly why you need the functionality of automatically generated cash flow forecasts. These continuously change as your situation changes so that you always have an accurate, clear view of the future. The historical data from your bank accounts is automatically collated, and machine learning algorithms grow to understand  the rhythms of your business. This ensures the forecasts become more and more accurate over time.

liquidity management in economic uncertainty

The truth is automation is no longer a “nice-to-have” – it’s a must-have. When cash flows are automatically recorded and normalized, treasurers can make the move from data wrangling to data analysis. This analysis helps you understand vulnerabilities. You can then manage your entire cash position – whether as one monolith or individually across regions – in a way that hedges against risk.

Utilize Tags

Keeping tabs on all your transactions is also incredibly important. The ability to bunch groups of transactions together allows finance teams to quickly see where money is going across multiple categories. 

Examples include ARs, APs, payroll, and so on. Depending on the nature of the crisis, tags allow you to go right to the information you need, rather than trying to isolate it across bank portals and spreadsheets. You simply use our Google-like search to find what you’re looking for. CFOs and finance teams can then deliver this information to the CEO, and work together to develop a plan.

Scenario Planning

Similar to automation, scenario planning isn’t something that a cutting edge finance team can be without.  What is scenario planning? Well, pretty much what you’d expect – building responses to different possibilities that could affect your business.

The goal is to see the effects of different outcomes, and stress test the vulnerability of your business levers. This enables you to be proactive instead of reactive.

Start With Your Baseline

But before you can build scenarios, you need a forecast baseline. Your baseline is your projected financial future if nothing were to change. It’s further refined by machine learning algorithms, which uncover rich historical insights and perform variance analysis.

Once you have that baseline, you can make adjustments to see how specific changes – say, disruption of an international supply chain – would affect your cash flow. Would you have enough liquidity to keep operating without making drastic cuts? Would you be able to quickly find a backup supplier?

If an economic downturn strikes, could you adjust your price points in a way that doesn’t dramatically shorten your cash runway?

While mostly tied to negative outcomes, scenario planning can also be used to respond to positive circumstances – extra revenue or lower expenses. By modeling investments, you can see whether they’re worth it.  Basically, with scenario planning you know how you’ll manage cash flow in positive or negative circumstances. It’s one more piece – but a critical one – of how the modern CFO can remain flexible and ready for risk.

Do scenario planning, and you’ll be one step ahead of competitors

A Single Source of Truth

The last piece CFOs need to quickly adjust to changes? Transparency. In order to act quickly, everyone needs to be on the same page. With spreadsheets, you don’t necessarily get that. There are issues with version control – spreadsheets aren’t a cloud-based tool, and when everyone’s editing, it’s not always possible to tell which version is the most recent.

After building your strategy, access to simple summaries of the data, such as dashboards, make it easy to communicate to stakeholders and decision-makers why you’ve chosen that particular strategy, even if they aren’t well-versed in finance. 

Finally, having a clear view of cash flows and building scenario plans helps the CFO successfully manage investor relations – understanding threats to your business and having responses ready to go boosts confidence (and could even make the difference to securing new funding during a downturn). 

Streamline Liquidity Management With Trovata

Trovata can strengthen the modern CFO to do what’s expected of them – navigate the financial ship, identify the biggest threats, and build responses to them. Real-time views, by definition, mean flexibility and agility.

With things getting slightly better, many executives plan to invest in software within the next year. In fact, 41% of CFOs plan to scale up digital investments in 2023 according to Gartner. But you still want to be cautious. Invest in software that allows you to be cautious by showing you exactly how each decision you make, each strategy you deploy, will affect your cash position.

liquidity management in economic uncertainty

Learn how Krispy Kreme scaled their treasury management capabilities with Trovata. 

With Trovata you can gain unmatched visibility of cash daily across all accounts, empowering you to better understand liquidity to make the most out of excess cash. Aggregate, search, tag, analyze, forecast, and report; gain everything you need to make smarter, faster decisions. Elevate your business’s financial operations with Trovata’s superior tools today.

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