Exclusive: The challenges and hurdles City finance chiefs will face in 2023
Firms across practically every industry in the UK are facing a bleak economic winter ahead, but where is that playing out and what hurdles do the incoming storm clouds bring in 2023?
City firms will be turning to one senior figure to understand these issue and look to keep the ship afloat – the Chief Financial Officer.
Serrala CEO and City insider Hartmut Wagner works with dozens of CFO clients in the Square Mile and around the world, and sat down with Morning Wire to share his insight into what finance chiefs are facing through this looming recession.
What are the top risks CFOs are facing over the next six months?
Put simply, working capital should be front of mind for CFOs getting ready for the six months ahead. As we enter a period of economic uncertainty, cash undoubtedly becomes king, and having a 360 degree view of finances will become crucial for senior managers.
“To stay afloat in the short term, having the right team, working capital technology and cash management systems in place will be key to plugging financial leaks before they sink the ship.”
Hartmut Wagner
Staying on top of a business’s cash position is difficult if balances are still being drawn manually from bank statements and quarterly or annual figures. It’s labour intensive, time consuming and increases the risk of being blindsided by problems that could have been avoided with the correct level of insight.
Which industries will be most affected?
The non-essential consumer goods and services industries will likely be most affected. CFOs in the leisure, hospitality, and wider retail industries have already taken a hit due to the recession and falling customer demand, on top of rising costs through supply chain disruption and fuel costs impacting the bottom line.
Give us an example.
Well take City pubs and other hospitality businesses as prime examples, which Morning Wire reported on recently. According to Retail Economics, nearly 60 per cent of shoppers expect to cut spending on non-food items in the “golden quarter” for retailers, October to end of year. As a result, CFOs will need to consider cutting costs and looking for ways to stop revenues collapsing.
That said, UK businesses are showing resolve, with company insolvencies down from highs in March of this year, according to the UK government. CFOs that plan now for lower levels of business activity can help this downward trend persist.
What are the unique hurdles CFOs in the City are facing?
It’s essential that CFOs in the City are keeping an eye on risks related to volatile markets and increasing commodity prices. It will be essential to manage financial instruments and cash flow in the most efficient and effective way in order to absorb the cost increases currently surrounding production, transport and retail prices.
How will this recession be different for CFOs compared with 2008?
Whereas the 2008 recession was a result of the collapse of financial markets, with banks in need of a tax-payer bailout, today’s recession is a result of the persisting supply shortages and increasing inflation. Consumers are being forced to cut spending due to inflation-ravaged real wage falls, which in turn has meant people are facing higher mortgage rates and a rapidly increasing cost of living.
“In 2008, financial systems were the first to be affected and cash was sparse. Today, it is the consumer who is taking the first hit.”
Hartmut Wagner
However, following the long period of economic growth 2008, many companies are still cash-rich and must utilise it strategically to bridge the recession gap. If CFOs aren’t savvy with cash management – with emphasis on accounting for unknown risks – we might see more firms in real trouble. This hints at the evolving role of the CFO in 2023 and beyond, which encompasses more responsibility and requires greater visibility of business activity, not only finance.
Can you please elaborate?
Well, real-time data tracking across wider business processes such as customer relationships, supply chains, procurement and logistics are what CFOs need to will need to understand in order to make strategic financial decisions in a timely fashion.
Will the role of the CFO evolve as the recession deepens?
Yes. If equipped with real-time data, cross-business insights and the ability to maximize working capital, the CFO will become more of an ‘all-rounder’ in the c-suite team. In other words, a company strategist who delivers precise forecasting and helps their company navigate this challenging economic environment and the inevitable others.
Those CFOs that arm themselves with the right tools for this volatile recession and its multitude of risks will be the blueprint for the new CFO – if they stay afloat. In 2023 we’ll see the approach to risk management change dramatically out of necessity. CFOs that rise to meet these challenges will not only survive but thrive as the UK rises out of recession.