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

For months now, economists have been speculating about whether a recession is inevitable, and if it is forthcoming, how impactful it would be. In keeping with recent years’ trends, predictions have been clouded by uncertainty, and even those on Wall Street are unsure what exactly we’re headed toward.

Meanwhile, throughout this economic limbo—and in the context of continued inflation, high interest rates and a potential recession—senior management teams are left facing this critical question: How do we balance growth and profitability? Some have resorted to layoffs as a means of cutting costs, but when do these companies begin to wonder if they’ve cut enough?

Business leaders need to think sustainably and strategically to build successful, cost-effective business plans as we head further into 2023. To do so, CFOs and their fellow C-suite should be collaborating closely—throughout this financial balancing act—to analyze all potential challenges to cash flow, prepare for cuts and cost reductions, and prioritize smart and efficient investment opportunities.

Facing The Reality Of Cash Flow Challenges

CFOs and their teams are looking for new ways to offset growing operational expenses. In the face of a possible recession, it’s more important than ever to prioritize working capital, rather than looking solely at revenue and cost estimates. Regular and rigorous analysis of accounts receivable and accounts payable, coupled with flexible forecasting models that take into account various potential economic scenarios, will be critical for financial success this year.

In an effort to manage costs, many companies have resorted to layoffs. According to a tech job tracker, approximately 150,000 tech jobs were cut in 2022. Companies across industries, such as Microsoft, Meta, Amazon, CNN and Goldman Sachs—among others—have all announced continued plans for layoffs in recent months, with roles associated with new product rollouts (such as in product management, quality assurance and marketing) being hit the hardest. In fact, according to a December survey, 1 in 3 companies expects to lay off 30% or more of their workforce in 2023.

Layoffs are ultimately a last resort cost-cutting measure, as the impact of a significantly reduced workforce could result in even further productivity challenges and lost revenue. Particularly while faced with a potential recession, and with higher interest rates impacting free cash flow targets, CFOs are considering all other possible avenues for cost management and reducing expenses, while also looking for new ways to improve cash flow.

For example, CFOs may consider reevaluating current vendor relationships to assess critical business needs and expenses. In tandem, they should be sure to analyze current customer collection and payment policies to ensure cash is flowing in as efficiently as it’s flowing out.

Planning To Do More With Less Through Enhanced Digitalization

In preparation for a potential recession, expense reductions will need to be made somewhere. Whether that’s a temporary reduction of services or a necessary reduction of staff, businesses will face certain productivity challenges if they need to do more with less. In a recent survey of over 400 CEOs and CFOs, 50% agreed that meeting demand with their current talent models will be a struggle; meanwhile, 59% of respondents expect increased customer demand for their products or service offerings.

Digital automation has played an essential role in filling the workforce gap and streamlining operational processes and will continue to accelerate, particularly in the Office of Finance. In the midst of continued layoffs, finance and accounting jobs are likely your most critical roles, and yet, attracting and retaining strong finance talent remains extremely challenging.

As a result, finance departments are doubling down on their digital transformation efforts. According to one survey, 57% of CFOs and CEOs plan to increase their use of AI technologies, with a third of respondents reportedly redesigning their workforce to depend less on people.

By automating tedious financial reporting processes, finance teams can easily improve efficiency and reporting accuracy—which can provide essential insight for businesses preparing for a recession. Furthermore, digital automation compensates for smaller team sizes by removing much of the operational burden. It can also increase engagement and bolster retainment strategies, while automation frees up time for finance teams to focus on more strategic, value-additive work.

Considering Strategic Opportunities For Growth

Throughout the volatility of 2022, businesses were more conservative about forecasting growth targets. This could be seen most notably in the sharp decline of IPOs and M&As last year. As we gear up for another potentially volatile period, CFOs will likely consider recalibrating growth initiatives for the year ahead.

However, businesses are getting creative, adapting financing models to the current economic context to continue to drive growth. A recent article in the Wall Street Journal explored the financing models of successful M&A deals brokered in the past year and anticipates the market will see more of the same creativity in the year ahead.

There are other potential investment opportunities in digitalization. In addition to supporting a reduced workforce, bolstering products or services with the latest digital advancements is a requirement for businesses looking to stay competitive in the years ahead.

Whether it’s through M&A or allocating capital toward strategic investments in digitalization, there are numerous ways to continue to drive the future growth of your organization despite market volatility. CFOs and their counterparts in the C-suite will need to balance these growth initiatives with a laser-focused view of the organization’s working capital and the impacts of potential expense-cutting initiatives to ensure the appropriate measures are being taken for sustainable business growth.