Governance, risk & compliance
Covid-19 caused severe stock shortages across many retailers, including supermarket chains.
that, through recessions, a few players emerge as the very obvious and dominant winners. We very much expect to be one of those, while all the emerging competition is slightly more asleep at the wheel.”
Recession-proofing a business Generally speaking, Steel thinks there are a couple of factors that might help finance leaders ride out a downturn. The first is having good cash reserves, while the second is flexibility.
1995 Reuters 42
The last time the UK saw such a big interest rate hike.
“Having a big war chest of cash is always helpful, because fundamentally, that gives you optionality,” he explains. “The other thing is the ability to change your business model quickly in response to market conditions and consumer or investor requirements.” Steel similarly thinks it’s important to be proactive about the strategies you put in place, as opposed to merely being defensive. While nobody can say for certain what the economy will be doing in 2023, the past few years have underscored that complacency is never a winning strategy. “When you’re working in a really fast-growing environment, like we are, you need to be able to anticipate changes, rather than just sit back and hope for the best,” he suggests. “We’re very much thinking about this every single day, and that’s how we’re running the business.” Clearly, no two CFOs are facing exactly the same circumstances, and their strategies will vary accordingly. However, there are a number of commonalities across industries. In a 2019 survey of US CFOs, finance leaders cited a range of actions they would take in the face of a downturn. These included reductions in discretionary spending, hiring freezes, delayed investments and debt changes. Deloitte, which conducted the survey,
noted that CFOs might need to make more drastic moves in the event of a full-blown recession. Some businesses might need to reshape their entire operating models – for instance by reducing their reliance on outsourcing.
Deloitte also suggested that businesses should continue investing in new products and services. This was borne out in the more recent Deloitte survey, which found that 19% of CFOs wanted to increase their capital expenditure as a ‘strong priority’. Over the medium term, most CFOs expect to see a rise in digital technology spending. Similarly, while many finance leaders are being forced to make job cuts, others are making tactical hires as a way to meet business demands. As recruitment professional Paul McDonald wrote in a recent Forbes article: “If you hold back on making critical hires, you could undermine your firm’s ability to be resilient and thrive at exactly the time you need all hands on deck.” Of course, this may not be practical for every finance leader staring down the barrel of a recession. For any business, there are times to make big investments and then there are times to cut back. Steel remarks that having to double down and focus can actually be extremely powerful. “It’s like how pruning a hedge can make the plant more healthy,” he says. “I think that that is one thing that businesses will really benefit from – having to be more disciplined about their use of capital. That will enable a great recovery, it just involves choices at this point in time.” A downturn may not be any finance leader’s dream scenario. Even so, it can force change for the better, helping them forge more resilient businesses that are better placed to weather future storms. ●
Finance Director Europe /
www.financedirectoreurope.com
Delpixel/
Shutterstock.com
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