Anna King, CPA and CFO of Mesh Payments.
The last year has been challenging for businesses across industries, and in some, it has ushered in profound changes. As a CFO of a fintech company, I’ve seen how the economic downturn has shaken the wider tech space. As of this writing, the number of layoffs in the global tech industry has reached well over 100,000 with even the largest tech giants shedding tens of thousands of workers.
Even beyond tech, there has been a strong focus on cost-cutting as CFOs and CEOs work together to stabilize their businesses and weather the current economic storm. At Mesh, our CEO, Oded Zehavi, and I have looked at the economic developments of the past year. From these developments, there are several key lessons that are informing our decision-making moving forward.
The bottom line is that whether you’re a startup, a high-growth company or a well-established business, the rapid economic shifts of the past year have offered many lessons.
Extend Your Runway—Immediately
Every business needs to ask how long they can operate at their current run rate. If you look into the near future and see the need to raise funds, this should be a red flag. It’s obvious, but 2022 isn’t 2021, and next year won’t get much better.
Looking back at the high times of 2021, companies behaved as if money grew on trees. The easy access to capital combined with pressure for growth at all costs led to a situation where spending was out of control.
Companies must be ready for at least 18 months of challenging economic conditions and optimally longer than that. The first step to extending your runway is by cutting costs.
Keep Costs Under Control
When the economy shifted and funding dried up, we saw companies rush to push through emergency cost-cutting measures. Budgets have been slashed across departments and thousands have been laid off. But now all the low-hanging fruit has been pruned and companies are still looking for ways to grow and be successful without spiking their expenses.
So it’s important to remember that spending needs to be controlled no matter what. If the economy is humming along, that is not an excuse for reckless spending. Wasting money during a growing economy is just as bad as wasting money during a slowing one since you’re missing the opportunity for even more growth during high tides.
Growth Is Not The Only Way To Be Successful
If you could summarize the mantra that led many companies into trouble it would be “growth at all costs.” Markets and investors rewarded growth over profitability and stability, and that led many businesses to ignore fundamentals.
It should be obvious that growth is not the only way to measure success. And now, many businesses are swinging back to focusing on revenue, profit and other fundamentals. This is of course a healthy and necessary correction. But that doesn’t mean you can ignore growth, or R&D, or other forward-looking metrics.
What’s needed is a balanced approach that looks at multiple metrics and understands the ways they support each other. Growing in an unsustainable way isn’t any better than profiting from a situation that can’t be maintained.
Embrace Finance Automation
I have been calling for it for some time. Too many finance teams are still using legacy tools, and it’s holding them back from optimizing spending. Automation has multiple benefits that cascade across your financial operations.
First, is the time savings for your team. This can free up time for CFOs and others to focus on the big picture, on ways for the company to be more successful.
Second, finance automation has the potential to unlock new opportunities and ways for businesses to operate leaner, and more efficiently. Automated tools can help identify wasteful spending but also help businesses find ways to consolidate their spending and maximize its effectiveness.
In addition, global and remote workforces have become the norm rather than the exception. Having your employees spread out around the world demands a new approach and new ways of operating. Finance automation can help manage this process while keeping spending under control.
Identify The Right Automation Solutions
Deciding to embrace automation is the first step, but now you need to ask important questions about which solution is the best fit for your business. First, it’s important to understand what gaps and pain points your team is experiencing. Take a look at the solutions on the market and see which ones are best suited to help you tackle those challenges. The range of technology solutions out there means core finance tasks—such as corporate spend and expense management—can now be automated. Every solution will have its focus and your business will have needs that are distinct from any other, so do the work ahead of time to understand where you need the most help.
No matter what pain point a finance automation provider solves, it is important that you are able to integrate it with the technologies and workflows you use every day. Specifically, understanding how a finance automation solution works alongside your ERP or accounting software. These platforms form the backbone of your financial operations. Any solution that you add on top of that stack has to lock in seamlessly. If you need more help evaluating a solution, don’t hesitate to tap into your network; ask around and see what other companies are using or refer to review sites too.
If you’re looking at the macroeconomic climate with trepidation, you can take some solace in the fact that you’re not alone. Every business, and every CFO worth their salt, has to think about the changes and adaptations needed for the new reality.
In many ways, the current situation is a reality check. That can sometimes be painful, but it can also be profoundly healthy and helpful if businesses can take balanced, thoughtful approaches that focus on core metrics beyond growth. Perhaps, the simplest and most basic lesson of 2022 is that sometimes we all need to come back down to Earth. That landing can feel rough, but it puts all of us in a much more manageable position.
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