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There’s no denying that the current economic landscape has been a rollercoaster of uncertainty. Over the past few months, the United States has sharply escalated its tariff policies, creating trade tensions with major partners including China, Canada, and Mexico. In a sweeping policy shift, the US imposed steep tariffs and then negotiated a temporarily lowered amount while also eliminating the long-standing de minimis exemption that allowed duty-free imports under $800. In response, key trading partners have retaliated with tariffs on US goods and restrictions on critical exports, which have triggered supply chain disruptions and a slowdown in the US economy. With trade negotiations uncertain and inflationary pressures mounting, global businesses are bracing for continued volatility.
For today’s organizations, this ongoing trade war directly impacts financial operations and dictates how they’ll spend. The day-to-day uncertainty has also forced business leaders to consider some difficult questions: How will they retain and bring in new customers? Are sales cycles going to be slower? Should hiring be paused? Do budgets get adjusted? Will they have to shift some of their vendors due to pricing and supply chain issues?
With erratic policy shifts, it’s difficult to understand how this will play out in the long term. But in the short term, organizations still have to manage their financials and shift their strategic focus to the numbers they can control—expenses and overall spend. Reverting to the pandemic playbook, many companies will need to focus on driving efficiency and cutting costs once again, which means taking a critical look at their forecasts and data to determine what will drive the highest ROI now without stunting future growth.
Expenses and Spend
1. Button Up the Expense Envelope
One of the first things finance leaders can do in times of uncertainty is to make sure they’re properly managing cash flow. To weather the financial storm over the next few months, it’s time to look at every corporate expense.
All company investments, whether it’s travel, software, etc., have to be looked at and evaluated. If new or current customers decide now’s the time to be cautious, do you still need to market to them as aggressively? Strategically, you want to balance high-cost initiatives with what is best for the company, so it’s important to understand what to invest in over the next two to three months.
On the technology side, you should make sure you’re getting the best terms. For example, if you’re purchasing new technology, do you need 100 licenses or can you get by with 70? For existing software, review your renewals and identify the necessary licenses and the best pricing available. You don’t want to renew at unfavorable terms or higher rates just because you weren’t aware of the deadlines.
2. Prioritize The Law of Big Numbers
A large percentage of company spend is employee-driven and based on salary. On the employee side, the key questions to ask are, do you freeze or delay hiring? When you look at headcount plans, can any roles be pushed out or sourced in lower-cost areas?
Similarly, all new and current vendor spend should be evaluated. Take a look at your original plan and make sure the actual numbers align. Analyze the data over the past quarter to see if you were over or under the projected budget, and determine what drove that. Certain purchases may also need to be pushed out if the numbers are off. Additionally, you might want to consider diversifying your supply chain with alternate vendors in different countries to take advantage of more favorable trade terms.
From sales and marketing to operations and compliance, examine all the different areas of your business by headcount plans and vendor spend. Make sure you understand what is necessary versus what is not critical right now. To make the biggest impact, you want to look at the highest-cost areas first. It’s important to understand team sizes, what their spend is, and what the results are from that spend. Keying in on those big numbers will give you insight into what’s really necessary for the business.
Forecasts and Data
1. Lean Into Scenario Planning and Rolling Forecasts
In times of uncertainty, companies like to be agile and proactive. To accomplish this from a financial planning and analysis perspective, you want to establish an effective scenario planning process. For instance, what are the downstream impacts if revenue goes down by x%? What will the company do if it goes down further by y%? Start with three to four scenarios and go from there.
A rolling forecast is another approach that allows you to adjust your budget in real time based on actual performance data. While you have a set budget, the forecast is updated every month to reflect what you observe in that current period. If a particular month performs significantly better than planned, you can maintain or even increase your budgets for the upcoming months. However, if a month underperforms, you may need to adjust your projections downward, as the trend line may be more challenging than initially anticipated.
2. Implement a Faster Financial Close
To be agile in an uncertain economic climate, your biggest ally is accurate, real-time data. The best way to get that is to close your books faster. Once you have those month-to-month numbers, you’ll be able to see how the business is doing from a spending perspective, which will ultimately inform your decision-making and recommendation process.
In volatile environments, outdated financial data is a big risk. But if you have the right technology in place, that risk lessens. An automated data collection process will flow easily through your systems and allow you to access key insights quickly. When it comes to spend, accounts payable and procurement automation specifically is a game changer. AP technology will accelerate the financial close process by eliminating manual processes, improving data accuracy, and creating real-time visibility into spend. An automated procurement process will make sure the appropriate checks and balances are in place before requested spend is approved or a vendor is paid. Technology will create a single source of truth for all payment and purchasing data, which will tighten the alignment between your budget vs. actuals and improve planning even under unpredictable conditions.
Anticipating the Growth Rebound
In any business, there will always be good and bad economic times. The right response involves understanding how these changes directly impact your financials. Ultimately, your main focus should be on the actual numbers you see.
Today’s finance organizations will continue to be asked to do more with less. To drive efficiency, it’s important to prioritize the things you can control, like your expenses and spend, effective scenario planning and forecasting, and technology that can remove manual bottlenecks and provide accurate data insights.
In uncertain times, it’s natural to want to react quickly. However, it’s important not to cut too deep. Improving your operations now will allow your business to thrive when the market rebounds. Today’s finance organizations should focus on weathering the current storm while also keeping an eye on future growth for when conditions improve. That balance is true business agility.
