CFOs, regardless of company size, feel pressure from all sides. From labor issues, ESG pressures, goals to optimize costs, and gauging the value of new technologies, the responsibilities that have fallen into the finance chief’s job description have become some of the most challenging in the C-suite.
For small and medium-sized businesses (SMBs) and their finance chiefs, things are especially difficult, according to Datarails' new SMB CFO sentiment report. Nearly half (48%) of the 260 finance chiefs of SMB businesses (revenue between $3 million and $999 million) surveyed by Datarails said they’re currently living through the most difficult challenges they’ve ever faced in their careers — including rising interest rates, inflation, supply chain issues, and geopolitical risks.
Confidence in the Economy
SMB finance chiefs said their confidence in the economy is very low. According to the Datarails survey, over half (55%) of CFOs believe the economy is directly headed towards a recession or already in one. That opinion differs greatly from executives as a whole, as CFO data from the 2023 Q2 outlook survey found nearly two-thirds (65%) of executives at companies of $250 million of revenue per year or less thought the opposite — reporting they were confident that a recession wasn’t going to happen.
According to Jonathan Marciano, director of communications at Datarails, company size plays a significant role in the overall concern level of CFOs. “SMB CFOs have a different set of challenges than enterprise CFOs, [and] this is reflected in their confidence levels compared to enterprise peers,” he told CFO. “The issue of rising interest rates, in particular, is emphasized [in the survey], and this is because SMB CFOs tend to worry more about financing than larger businesses."
“SMBs prioritize spending and investment to ensure survival,” Marciano continued. “They are more likely to use financing to cover payroll costs and to float any foreign exchange or supply chain issues, so anything that impacts borrowing costs makes CFOs nervous. The challenges of rising interest rates, changing customer demands, supply chain disruptions, and volatile energy prices are all reflected in confidence levels.”
Handling Rising Technology Costs
With encouragement from other leaders to incorporate technology for efficiency, hiring, and employee morale, CFOs of SMBs are digging through their budgets to find new ways to pay for the rising costs of such tools. Datarails found that SMB CFOs plan on increasing their spending on technology by nearly 14% this year, and despite directions to cut costs, leadership from Datarails suggests a proactive approach to technology spending is the best way to take on long-term rising costs.
“Invest today,” Annette DeYoung, FP&A solutions consultant at Datarails, told CFO. "The cost of technology rarely decreases, [and] if you want to sustain your data and your insights, you should invest now when you want to, instead of later, at a much higher cost, when you have no choice.”
DeYoung also believes that investments in technology now make the goal of saving money in other areas in the future much more feasible. “In addition, SMBs should see technology cost in comparison to employee cost and the cost of employee turnover,” she said. “If automating manual processes leads to higher employee satisfaction and less turnover, or even lower need for recruiting, then it tends to result in saving overall, even if technology costs rise.”
Among the technologies in use, Datarails found CFOs used accounting and ERP system software more than any others last year: More than three-quarters (78%) of SMB finance chiefs spent money on technology in this area. Difficulties with this type of software are well known, according to DeYoung, and particularly impact SMBs in their ability to incorporate further technology.
“SMBs for the most part have not invested in technology sufficiently, even accounting for the increase in spend shown in the survey,” she said.
Tech Value Drivers
CFOs and their teams have had conversations about what makes technology valuable, maximizing the value of their costly SaaS products. The search, purchase, and implementation of software can be some of the most challenging parts. In an environment where CFOs desire to cut costs, for example, price is the least important factor among SMB CFOs when incorporating autonomous finance into their workflows, according to Datarails' findings. Less than a quarter (22%) of CFOs said price is an important factor when determining the value of technology, compared with 54% who said "ease of use by the wider business" is.
“In the past, CFOs might have been lured to buy software because of creative ad campaigns, or [an encounter] at a CFO conference, but now CFOs wanting quick answers to people, process, or tech questions are turning to something altogether more basic and powerful: word of mouth,” said Marciano. "[Now], CFOs care whether a software is actually going to be used and that it's not going to end up as shelfware."
In Marciano's conversations with finance leaders about acquiring technology, this idea of avoiding shelfware is becoming increasingly common. According to him, leaders who strategically identify their needs before searching for technology are in a much better position to purchase something that will provide long-term value to their business.
“Interestingly, the four biggest reasons for choosing a software are variations of this theme of essential software versus shelfware,” he said. “CFOs talk about a checklist that includes ease of use for the entire business, simple implementation, value, and software that can scale with the company's growth. Despite a reputation for penny-pinching, low price is the least important factor, CFOs realize that if the software doesn’t deliver on these promises it will end up costing more.”