How to navigate the 2024 financial landscape: A guide for CFOs

In a world of market volatility and uncertainty, CFOs face unprecedented challenges in planning for the future. With interest rates and inflation on the rise, raising funds and controlling cash flow is becoming increasingly challenging. With so many factors at play, CFO strategies (and tactics to roll them out efficiently) are essential for driving efficient growth and stability.

Long-term macroeconomic trends to factor into your next financial planning session

The current market environment is undoubtedly marked by volatility and unpredictability. In the past two years, we navigated through a series of critical situations, including:

• Collapse of Silicon Valley Bank
• Struggles faced by regional banks in the US
• WeWork's financial challenges in the US
• Concerns about interest rates and inflation, which will persist through 2024 and likely beyond

Payhawk CFO Konstantin Dzhengozov and Jorge Lluch, Co-Founder & COO at Abacum, participated in a recent webinar, "The CFO's guide to driving efficient growth this planning season."

Konstantin shared his view of the current volatile market, which is reflected by many across the finance and business space, saying:

I anticipate that interest rates will remain elevated for the foreseeable future, spanning the next three to five years. It's evident that the era of easy, virtually cost-free financing that characterized the past decade is over, and we must prepare for the evolving financial landscape.

This state of market instability is here to stay for a while. So, how can you financially prepare your company in times of turmoil? Let's start with the fundamentals of fundraising in times of crisis.

Fundraising in times of crisis: Fundamentals for CFOs

Fundraising in the current market presents a unique set of challenges for companies. And as the financial landscape evolves, CFOs are faced with navigating high interest rates on venture debt and other debt instruments.

The challenges of CFO fundraising in 2024 and how to counter them

High interest rates, lack of investor confidence, and other macroeconomic factors have increased over the past two years. And the uncertain economic climate and market volatility have made investors more cautious and selective.

The CFO and finance team are now more important than ever. Given the challenging backdrop, the finance function's role must adopt a proactive approach and implement strategies that attract investors even in uncertain times.

What can you do as a CFO or finance leader to achieve the above, even in uncertain times?

Actionable tips for fundraising in uncertain times:

1. Leverage your company's unique value proposition and highlight how your solutions address current market needs, countering the negative trends.
2. Showcase your resilience and adaptability track record to instill confidence in potential investors.
3. Take a step back, assess the organization's financial activities, and focus on proposing suggestions for improvement across every department in your organization.

With the recent negative trends in finance, CFOs are now co-headed individuals in almost every room, offering a realistic assessment of the current state of affairs, what lies on the horizon, and how best to chart a course for the future.

What does this mean for CFOs?

While the overall market conditions might not appear optimistic in the coming months, one thing is for sure: Maintaining a firm grip on financials is paramount.

CFOs must be deeply involved in the day-to-day operations of their companies to fully understand and present an appealing financial picture and instill stakeholders' confidence about the company's future direction.

More strategic involvement and a collaborative approach will give CFOs and financial leaders a comprehensive understanding of the company's workings and enable them to make informed financial decisions, offer insights, implement change, and more.

How can your finance tech stack help you navigate the current economic landscape?

The tools and tech used by CFOs and their teams are (and will remain) super important for handling today's and tomorrow's market challenges. Top CFOs reveal that they drive 6.6% of business savings with spend management tech.

New expense management tools are a big help for today's businesses. They make operations smoother and faster, crucial in a fast-changing, competitive market. At Payhawk, our spend management solution can give you real-time control over finances, while smart forecasting tools like Abacum can help you plan and adapt quickly in uncertain times.

The CFO's choice of solution stack significantly influences the organization's ability to access accurate data, conduct in-depth analysis, create diverse scenarios, make decisions, and act promptly. Moreover, it helps make the planning cycle more fluid, so it's imperative to integrate these business spend management solutions into your stack.

How does company headcount factor into the modern financial landscape?

Konstantin and Jorge agree that the relevance of headcount and how to track hiring plans in businesses, especially in the context of SaaS companies, is a big deal. Sharing that, typically, headcount in SaaS and similar industries represents a significant portion of operating expenses, sometimes as much as seventy percent.

Konstantin mentions that at Payhawk, we pay meticulous attention to this aspect. Our approach is closely tied to the company's goals, revenue trends, and overall growth trajectory.

Using capacity planning models to budget headcount effectively

Konstantin explains:

Internally, we have dedicated substantial time to developing a capacity planning model for each business function. Given that headcount usually accounts for a substantial portion of our operating expenses, it serves as a foundational element and a critical factor influencing our scalability.

To illustrate this point, let’s consider our support and compliance functions and how we’ve established effective hiring workflows through capacity planning:

1. We've built capacity plans and models for our support and compliance processes.
2. These models established the maximum capacity that a team can handle (e.g., X customers per month), factoring in current and future customer expectations.
3. Based on these models, we planned team capacities in various territories where we operate, making closing the year and budgeting for the next one easy.
4. This approach extended to sales, marketing, and R&D, leading to more predictable business outcomes.

These four steps helped us make internal financial planning workflows more fluid and efficient.

The key to developing such capacity planning models lies in gaining expertise in how your business operates and remaining agile in your analysis as assumptions and conditions evolve swiftly.

Regular analysis, adjustment, and collaboration within departments help comprehend and re-evaluate assumptions of the capacity planning model, making it more accurate.

How do you adjust your capacity planning model as you scale?

For Payhawk and many other companies, the shift from the era of easy, low-cost financing to one of efficient growth has been a pivotal transformation.

Efficiency is now at the forefront of our approach to scaling the company. Preserving cash and ensuring a healthy runway to meet our objectives is a huge priority. Efficiency is one of our guiding principles, and in action, it includes careful analysis of all our departments, looking at underlying expenses, ensuring that every new headcount is worth the investment and contributing positively to our overall digital transformation ROI.

We carefully analyze all these departments, looking at underlying expenses, ensuring that every new headcount is worth the investment and contributing positively to our overall digital transformation ROI.

Having a hiring plan or a budget doesn't mean automatic spending or hiring. Business tracking and evaluation are crucial. We must be mindful of expanding staffing in line with market signals, traction, and internal human resource movements. Over-hiring without sufficient demand can place unnecessary burdens on the company regarding onboarding, training, and ensuring meaningful work for new hires.

The best way to track this hiring plan is by completely controlling any approved headcount additions.

Therefore, we closely monitor our plan throughout the year, adjusting based on market feedback and our performance. Any deviations from the budget require a rigorous justification process. Those proposing additional headcount must explain the need, how it will address issues, and why it's the most suitable solution.

Having a team of talented people is vital to making any business a success. But it's important to remember that adding more and more people isn't always the answer. You should also lean on tools and initiatives, like spend management automation or alternative hiring approaches to help drive efficiency.

Using monthly roll-forward forecasting to inject agility into financial planning

Since the early stages of Payhawk, we've established a rigorous system with strict deadlines for month-end closing, reporting actuals and updating our financial models. This approach revolves around monthly roll-forward forecasting, incorporating the actual financial data into our models.

What is roll-forward forecasting?

Roll-forward forecasting is a powerful financial management technique that allows businesses to project their financial performance into the future by building on existing data and trends. It's like taking a snapshot of your current financial situation and using it as a starting point to predict what lies ahead.

Unlike static forecasting, where you start from scratch each time, roll-forward forecasting considers the latest actuals and updates the forecast accordingly. This dynamic approach ensures that your projections are always up-to-date and aligned, especially in today's ever-changing business landscape.

Our business plan and model are intentionally designed to facilitate easy updates, accommodating critical assumptions and observed trends. This flexibility enables us to extrapolate the business's performance over a twelve-, twenty-four-, or thirty-six-month horizon, which proves invaluable when preparing for fundraising activities.

Whether it's sharing a three-year plan with investors or potential partners or going back in time to identify potential trends, having access to accessible and highly accurate data gathered through this model equipped us with the insights needed to anticipate how changes will affect key performance indicators such as cash burn rate and top-line growth.

How do you apply these CFO strategies to other business areas outside of finance?

Collaboration is key! As CFOs and finance leaders, you must create collaborative processes that help you learn and adapt fast, understanding that when you set your company’s budget or forecast, you’re essentially setting performance goals for the company.

Ultimately, collaboration boils down to conversations that revolve around lessons learned, expected outcomes versus actual results, and any subsequent actions. Taking this approach will make your financial planning models more effective, helping you to justify (or deny) some assumptions of the model in time.

Here are some of the questions you could potentially ask your department owners next time you meet them:

• What did you learn if you didn’t hit your goals?
• What are the things you could change in retrospect?
• What do you expect will happen if you make this change in the future
• Are you going to be setting new objectives?

Moving beyond just planning or setting goals, it's important to make improving company performance a team effort. By encouraging a mindset of learning and adapting, companies can move away from rigid yearly budgets to more flexible processes.

But how can you make this shift a reality? To put this shift into motion, you need people in your organization to see the finance department as something other than fault finders or receipt-chasers. Instead, you need them to see you as catalysts for positive change and improvements in financial processes.

How to bolster growth in uncertain times with spend management from Payhawk

The current business landscape might look gloomy for CFOs. However, here at Payhawk, we see it as an opportunity to make your financial workflows more fluid, enabling you to respond better to market fluctuations.

Here's a rundown of the CFO's role in managing uncertainty and our top hints of actions you could take:

• Get valuable insights from industry leaders on long-term trends and fundraising challenges and leverage technology in financial planning
• Adopt a proactive and fluid approach toward financial planning and implement strategies to attract investors even in uncertain times
• Improve and update your tech stack as your chosen spend management solutions will be pivotal in ensuring you thrive even in current and future market dynamics.
• Use capacity planning models to help budget headcount effectively and align with the company's goals and growth trajectory (and use them for better headcount planning)
• Implement roll-forward forecasting to help you project financial performance
• Foster a culture of continuous improvement and cross-departmental collaboration for more effective financial planning
• Choose an agile approach and adopt flexible technology to get quicker access to insightful data and achieve alignment across the organization
• Standardise definitions, communicate data-gathering processes, and use a single-source-of-truth system for financial reporting

To delve deeper into these topics and gain expert insights, watch the full webinar, The CFO's Guide to driving efficient growth this planning season.

And if you're ready to supercharge your financial processes, save time, and get complete visibility over spend using an effective corporate spend management solution, book a demo today.