Omar Choucair

Forbes Councils Member

Omar Choucair, CFO, Trintech, has spent 20+ years leading financial and administrative organizations for public and private companies.

It would be an understatement to say that management teams have negotiated several unprecedented global economic and business issues over the past few years. Tackling one crisis after another has been an all-consuming effort, and from the pandemic response and roller-coaster recovery to the “Great Resignation,” management teams are growing weary of fighting fires. We don’t want to hear another R-word, and yet, the next one has already started creeping its head around the corner. Now, the C-suite members are wondering: Are we headed into a recession?

Recession became a top risk in a survey this year from Gartner. It stands next to risks like inflation, supply chain interruption, pulling post-pandemic talent and ransomware threats. And a growing number of economists are predicting that the odds of a recession happening are getting higher. According to a Bloomberg survey released in May, the probability of a recession within the next 12 months is at 30%, up from 27.5% in April and double the odds predicted three months prior.

Whether a recession actually occurs or not, finance and accounting teams can—and should—be prepared to address these overlapping crises at once. Smart budgeting is the first step, but beyond that, if your team maintains a growth mindset and is supported by the right infrastructure, your company can still achieve its strategic objectives and drive growth in 2022.

Here are three key considerations to help get your F&A team ahead of a potential recession.

Go back to basics with smart budgeting.

The first and most important step is to take a fresh and critical look at financial and operating budgets for the remainder of the year.

With inflation hitting a 40-year high, on top of pre-pandemic supply chain issues and an ongoing national labor shortage, businesses are spending much more on operating costs and talent acquisition than anticipated when 2022 planning initially got underway in 2021. Additionally, while compensation wages have grown at higher than expected rates for the last two years, real inflation has exceeded the wage gains resulting in additional pressure on U.S. workers.

Inflation is only a part of the problem when it comes to increasing expenses. In an effort to stabilize the economy, the Fed will continue to “aggressively” hike interest rates over the next few months. With higher interest rates and pending debt maturities, companies’ cost of capital is a very significant variable that management teams are dealing with. As a result, companies may reevaluate opening new lines of credit and instead prioritize paying off debt.

Higher interest rates are impacting the stock market, especially for public tech companies. While you cannot predict which way the market will go, you can look at market movements as an indicator of consumers’ interests and spending habits. As a reflection of that, many companies are forecasting lower earnings now than at the start of the year.

With uncertainty around the demand for goods and services and continued rising operating expenses, it can be difficult to maintain a realistic forecast. As a general rule, focusing on actual cash flows and working capital, rather than solely revenue and expenses, can help ensure a financial plan that can withstand fluctuating economic circumstances.

Build a more productive and resilient team.

Once you have the right forecasting and budgeting framework in place, the next priority should be retaining your biggest asset: your company’s talent. Attracting and retaining talent has been a major challenge for businesses, particularly over the last 12 to 18 months, one that I have explored in detail recently.

Upskilling your team should be a core tenet in your talent retention strategy. It may seem like a large up-front investment at first, but studies have shown that it’s an ongoing investment that tends to pay off. According to PwC survey responses, “93% of CEOs who introduce upskilling programs see increased productivity, an improvement in talent acquisition and retention, and a more resilient workforce.”

Meanwhile, several larger tech companies are talking about stabilizing their offerings, considering layoffs and potentially cutting back on new hires. While it’s critical to stay competitive to acquire talent, many companies are considering whether they have reached their limits in terms of what they can offer while still achieving forecasted EBITDA margin targets.

Optimize operational processes with the right-sized infrastructure.

Infrastructure, including key technology, plays a major role in driving organizational growth even in an uncertain economic climate. In fact, a recent PwC survey revealed that 60% of executives identified digital transformation as their most critical growth driver in 2022. At the same time, our recently released 2022 Trintech Benchmark Report, which tracks key trends in F&A digital journeys based on the feedback of over 160 finance professionals at enterprise and midmarket firms on an annual basis, found that the majority of respondents were lagging in their digital transformation journeys.

The most commonly cited challenges in the Benchmark Report include reduced team sizes, inability to meet deadlines, and less time for analysis to gain business-critical insights. The results of the survey also confirmed that the majority of F&A teams are still using processes like manual matching and spreadsheets. These processes are outdated and cannot handle an increase in people, reconciliation volume and the introduction of new processes.

By automating critical processes, finance teams can also successfully bridge the gap in reduced team size while freeing up more time for employees to focus on value-enhanced work. Teams that focus on strategy and big-picture projects rather than spending time on mundane operational tasks are more likely to drive growth and proactively anticipate emerging market trends or potential operational risks. This also enables more time for employee training, technical upskilling and development programs.

Finance teams led the management teams through the recent pandemic. Once again, these same teams can rise to the challenge of providing leadership as companies navigate growth amidst the growing uncertainty of rising interest rates, growing inflation and a possible recession around the corner. With smart forecasting, upskilling and talent retention programs, and bolstering operational frameworks, businesses can be well-equipped to manage fluctuating economic circumstances.