Confronted with economic uncertainty, fluctuating markets and rising costs, today’s finance leaders face a precarious balancing act. They must navigate budget constraints while continuing to fulfil the business’s strategic goals.
It is by no means the first time that businesses have had to contend with a challenging environment: few could forget the 2008 global financial crisis, which saw banks around the world collapse. But for many CFOs, who are increasingly relied upon to act as architects of business growth and resilience, the stakes today may feel higher.
According to NatWest, three in five business owners dubbed 2023 one of their most challenging years to date. Against this backdrop, finance leaders are finding it difficult to meet their growing responsibilities. According to the EY 2024 Tax and Finance Operations survey, 43% of finance and tax leaders cited a lack of budget as the biggest barrier preventing their tax and finance functions from delivering their purpose and vision. It marks the first time in the survey’s history that cost has been a leading challenge in this area.
With businesses facing rising labour costs, higher energy bills and ongoing supply chain uncertainty, many are opting to focus sharply on budget efficiency rather than pass additional costs onto customers.
To weather the storm, finance leaders must evaluate the importance of potential projects, weighing long-term value against short-term cost. In the past, CFOs often took a piecemeal approach to making cuts, with little consideration for the bigger picture. But today’s CFOs are taking a more holistic approach. For many, the need to balance strategic cost-cutting and investment has become a fraught but essential task.
“Balancing the budget and investing in the finance function is a challenge, so you need to be very deliberate about what would benefit the finance team and the value it would bring the wider business,” says Christoph Martin, CFO of PensionBee.
Strong leadership is critical, particularly through more challenging periods
Martin says finance leaders need to have a deep understanding of what the team is required to deliver to meet both the organisation’s strategic goals and the expectations of individual team members.
“Strong leadership is critical, particularly through more challenging periods,” says Martin. “Leaders should carefully go through the budget and prioritise those needs, then look at what is left over and work out what would bring the greatest value to the finance team. If there is a good investment that would add significant long-term value - in technology or staff training, for example - leaders need to clearly articulate their business case, demonstrating the revenue growth it will generate.
“Ultimately, finance leaders must take the view that it is an investment rather than an expense.”
Heather Hopkins, founder and managing director of NextWealth, agrees.
“Navigating budgets and prioritising operational resilience is a balancing act. I try to ensure that every investment we make, whether it is in technology, people or infrastructure, contributes to the long-term growth and stability of the business,” she says.
Hopkins approaches budgeting with a clear focus on the business’s recurring revenue streams to ensure resilience over time. “We focus on projects that add value in the long run, not just in a short-term budget cycle,” she adds.
Operating under the adage ‘less is more’ is no easy feat for finance leaders, particularly with the growing demands placed upon the finance function. Long gone are the days when finance was relegated to back-office administration. Today, CFOs are expected to act as strategic advisers to the CEO, responsible for enhancing operational efficiency and maintaining a competitive advantage.
However, unlike their predecessors, modern CFOs have one significant advantage: access to technology that can streamline processes. By coupling technological automation with real-time KPIs that hold individual corporate and operational functions to account, businesses can accelerate performance results against tighter budgets. In turn, these real-time insights can also enable management teams to make more informed and impactful decisions.
Unsurprisingly, interest in tech-driven solutions is surging. EY reported that one in three finance leaders believe utilising technology to drive increased automation and insight will be the most effective way to reduce the cost of their tax function while maintaining quality.
Strategic investments in these core areas can yield significant benefits at a fraction of the cost and time required for a full-scale transformation. However, to maximise this impact, finance teams must plan thoroughly and lay effective foundations for sustainable performance improvements.
Martin agrees that prioritising investments in smart technology can be a valuable addition in the long term.
“By automating manual tasks, finance leaders create more time for their team to focus on strategic projects that will add long-term value to the business,” he explains.
CFOs are increasingly outsourcing certain elements. This is hardly surprising given the speed at which CFO responsibilities have changed and developments in technology and operational structures.
More than half (53%) of CFOs, finance executives and financial controllers surveyed by EY currently co-source their transactional accounting capabilities from a third-party provider, while 63% do so for statutory reporting.
The move towards outsourcing and co-sourcing also comes amid talent shortages, with 27% of finance and tax leaders admitting the inability to hire and retain the required talent is hindering their finance function from fulfilling its purpose. Outsourcing provides finance leaders with access to a vast talent pool and the ability to ramp up or scale back work as needed, offering greater financial flexibility. At the same time, CFOs can redirect their teams’ knowledge and skills to more value-adding initiatives and projects that benefit business growth.
Navigating tighter budgets can be a turbulent experience, but adopting a holistic, strategic approach ensures that the finance function is much more likely to weather the storm intact.
