A CFO’s Recession Survival Guide
Practical steps to prepare your organization for whatever economic conditions are around the corner.
The downside of the business cycle is again rearing its head, and one doesn’t need to look far to find business media flooded with negative economic news. While it’s not inevitable, all signs point to an impending reduction in growth around the world and a likely recession in the near future. We have no way of knowing how long this economic downturn might last, or how it might affect our organizations, yet CFOs need to be preparing today for whatever we expect to come.
So, picture the CFO of a midsize company—a business too small to directly influence the market in which it operates, but large enough that a downturn in revenue would have a substantial impact on its owners, employees, and other stakeholders. That CFO is currently trying to decide whether the organization can afford to make investments to support future growth, whether the business can survive the approaching economic turbulence, and whether the company needs to act now to avert harsh impacts of a slowdown before it happens.
It helps to remember that none of these decisions is new. Many CFOs have taken on that role since the last major downturn, but anyone who has worked in finance for a couple of decades will remember the early 2000s and the 2008–2010 challenges, against which the next two years will surely be compared.
If a recession happens, then yes, there will be a shakeout. Companies whose business models are not resilient are likely to falter. Entire industries with immature ecosystems—I’m looking at you, crypto—are at risk. There will be closures, layoffs, and perhaps even social unrest, depending on how long it takes to restore growth and recruitment. However, for companies that are stronger and more adaptable, there will also be new opportunities.
Where Should Finance Be Focused?
There’s a natural tension between short-term, urgent action and planning for the longer-term. This tension tends to be exacerbated by macro trends, such as inflation or recession, or by disruptive events, such as the Russia-Ukraine conflict. All too often, external crises shift the focus horizon of the finance leadership team to the very short term. CFOs concern themselves primarily with liquidity, access to capital, retaining suppliers, etc. This is understandable, but it is also, by definition, short-sighted. CFOs must continue looking at the long term.
That’s because opportunities arise in difficult circumstances. Recessions, inflation, and other painful short-term conditions provide a chance for the management team to truly refocus on the organization’s key mission, whether it is product-, customer-, or industry-focused. Leadership can implement new approaches for deepening relationships with key partners—including suppliers, clients, and investors—as their organizations band together to weather the storm.
For finance professionals, a rocky economy highlights the criticality of our capabilities. Financial analytics skills are never in greater demand than during periods of uncertainty. Financial planning and analysis (FP&A) teams, in particular, tend to have a high profile when times are tough, and for good reason. They are the team members—especially those with additional certifications—who are tasked with constantly looking ahead, peeking around corners to prepare the organization for what’s on its way. That said, the essential competencies of planning and forecasting are useful to all financial professionals, as anticipating the future is a key part of the job description for every treasury, finance, and risk management professional.
For CFOs and other senior finance leaders, the higher-level executive perspective supports systems thinking that can ensure decisions being made reflect what’s best for the whole organization, in contrast to line-of-business managers’ narrower focus on individual groups’ goals.
And for risk managers, preparing for deteriorating economic conditions presents an opportunity to test company policies in a real-life situation and learn from the result.
5 Steps for CFOs to Prepare for Downturn and Recovery
1. Develop a plan. While it would be great to have action plans already written for the prospective economic downturn, many organizations have not yet done the longer-term thinking and scenario planning necessary to be prepared.
If your company already has a plan, take the time to review it carefully. Build and run several different scenarios, so that the organization has a gameplan for confronting whatever economic situation ends up unfolding.
If you don’t yet have a plan, start developing one now. Involve your finance and business leadership teams in thinking about the various possible impacts of a recession and ultimate recovery. What challenges would it present? What opportunities would be created? And what is the best way to equip your organization to tackle both sides of that equation?
2. Know your key players. Every organization has some people who know their individual processes inside and out, and other people who are the system thinkers—they understand how all the pieces work together and how the organization interacts with its various stakeholders. Understand these capabilities throughout your organization, as well as how you can leverage each type of skill in managing through challenging times.
3. Communicate with everyone. The stakeholder ecosystem works best when everyone knows what the others are doing. This requires a level of collaboration and trust across the supply chain, customers, and investors.
One crucial element in smoothing a company’s bumpy ride through recession is to approach the downturn with strong, trusting relationships with all stakeholders. CFOs should make it a priority to be developing this trust continuously, so that your organization can rely on its partners and stakeholders when you most need to.
As you’re evaluating your communication strategy, don’t forget about your organization’s owners, shareholders, and/or members, to whom you owe a duty of care. Make sure they know what’s going on in the external environment, how you’re responding to that situation, and the outcomes you anticipate as a result of your actions.
4. Look beyond today. The operational issues of the day are important, but as leaders, we should not lose sight of the longer term. To persevere through difficult circumstances, people will want to understand that there is a future they are working toward.
In conjunction with your executive team, envision that future—and likely multiple possible futures—and consider how to prepare for them. Understand which are the most likely outcomes, but also what indicators (triggers) would signal a shift away from that most likely case, and plan how the organization should respond if those signals arise.
5. Value your team. Continue to invest in your treasury, finance, and risk management teams. Now is not the time to fall behind in terms of skills, either at a personal level or an organizational level. Make sure you understand the capabilities your staff currently possesses, as well as those you’re going to need in the future. Define and execute a gameplan to build those capabilities, even when times are hard—especially when times are hard.
Certainly, the economic conditions that we seem to be seeing on the horizon will present challenges to many organizations’ finance teams. By having a plan, keeping longer-term ideas at the forefront of the planning process, and building the right capabilities within the organization, finance leaders can help their companies not only weather the storm, but learn to thrive in it.
See also:
- Real-Time, Dynamic Scenario Planning
- Emerging Risks: Get Ahead of the Unexpected
- Planning Liquidity in Times of Uncertainty