The U.S. economy proved itself quite resilient in 2023, delivering strong GDP growth, lower inflation, and steering clear of recession. That’s not to say small and medium-sized enterprises (SMEs) have been sailing in calm waters. Indeed, we faced soaring interest rates, pressure to increase wages, tightened bank lending standards, and other challenges. That said, CFOs are uniquely positioned to see the bigger picture, understand the ins and outs of their companies, and map the best path to success.
Here are six challenges businesses will encounter in the new year and what actions CFOs should be taking in 2024.
1. Volatility and Resilience as Cornerstones
There’s no denying it, we live in a world where volatility and change are not only constant but expected, and 2024 will be no different with ongoing geopolitical turmoil, including the wars in Ukraine and Gaza as well as strained U.S./China relations. A contentious presidential election is brewing in the U.S. along with political uncertainty in many other parts of the world. And, while we avoided recession in 2023, what should we expect of the U.S. economy in 2024?
During 2024, more than ever, CFOs must take a leading role to ensure their companies’ resilience. Ensure you intimately understand your financial position, identifying, analyzing, and trending the key metrics and indicators underlying the business. Invest in new reporting to address gaps and blind spots.
Tightly manage cash flows, ensuring you can meet debt obligations, pay suppliers, and issue payroll. Complete closings, reporting, and forecasting, including “what-if” scenarios, timely to ensure cross-functional partners can make informed decisions. And proactively manage risks and seize opportunities along the way.
2. The AI Revolution Continues
Artificial intelligence (AI) has been a disruptor for a long time, but recent breakthroughs have placed generative AI at the top of everyone’s mind. Think, for example, ChatGPT. While few of us were talking about ChatGPT coming into 2023, it grew to one million users in only five days and reached 100 million monthly active users within two months of its launch, “making it the fastest-growing consumer application in history.” Leveraging AI to automate existing processes and reporting, leading to faster data analysis, higher quality predictions, and more informed decision-making, could be a game changer for your organization.
While AI and other developing technologies could benefit nearly every part of an organization, CFOs must play an active role in their adoption, use, and governance. Invest time in building your awareness of AI and other emerging technologies. Make experimenting with ChatGPT or similar tools part of your daily routine.
Know the risks of AI, including data bias, privacy, security, data accuracy, and authenticity concerns as well as regulatory compliance challenges. Formally define your organization’s policy regarding AI’s use and revisit this policy over time as your cross-functional team becomes more comfortable with the technology. Develop strategies to upgrade your digital processes, harnessing the benefits of AI and other emerging technologies, considering scalability from the start. And deploy these new technologies responsibly and securely.
3. Cyber Risk Lurks Around the Corner
A data security breach is one of the CFO’s biggest nightmares, and the bad actors are getting really good at their trade. Malware attacks, especially ransomware attacks, are on the rise. A small company I knew, already tight on cash, fell victim to a cyber fraud that nearly resulted in its insolvency.
As CFOs, we must be vigilant and proactive regarding cyber risk. Document your cybersecurity and related policies. Require multifactor authentication to access company data, encrypt email, and secure email attachments. To protect against ransomware, back up everything. Build organizational awareness of cyber threats via all-employee training and phishing campaigns. Develop disaster recovery and business continuity plans. Leverage a cybersecurity framework (e.g., NIST’s framework) to assess your current approach vs. best practices, identifying and addressing gaps accordingly.
4. The ESG Drumbeat Grows Louder
According to Protiviti’s global finance trends report, environmental, social, and corporate governance (ESG) metrics and measurement were ranked as the top finance priority. The European Union’s Corporate Social Responsibility Directive (CSRD) took effect in early 2023.
The U.S. SEC continues refining its proposal on climate impact reporting requirements. Stakeholder demands, moreover, are forcing private and public companies alike to prioritize ESG-related initiatives and reporting. For example, while recently reviewing a potential new customer’s draft master services agreement, I noted multiple pages outlining their ESG policies and expectations.
As CFOs, even for private SMEs, we need to be proactive regarding ESG. Build your personal ESG awareness and that of your cross-functional partners, especially as it pertains to sustainability and reporting requirements impacting your business. To the extent you are gathering and reporting ESG data, moreover, whether for internal or external purposes, ensure appropriate controls are in place and tested.
5. Regain Control Over the Supply Chain
Many global supply chains have been severely stressed due to the lingering impact of COVID, energy shortfalls, geopolitical tensions, armed conflicts, soaring inflation, extreme weather, and other disruptions. These challenges are still unfolding but, when the dust settles, the global supply chain will surely look very different.
To strengthen your supply chain, analyze it end to end with a continuous improvement mindset. For example, engage customers in joint demand planning sessions to pressure-test production requirements. Identify critical suppliers and strengthen relationships with each. Implement cycle counting to ensure accurate inventories. Assess your shipping network, holding freight partners accountable for providing reliable, timely, and cost-effective services. And proactively identify cost reduction opportunities.
6. Finance Talent – Help Wanted!
Although the U.S. job market may be softening, there is no relief in sight regarding the ongoing shortage of accounting and finance talent. At the same time, the CEO, board, and cross-functional partners are expecting much more from their CFO. Today’s CFO and their team must have strategic agility, analytical ability, and a business partner mentality.
Beyond the CFO hat itself, today’s CFO, especially the smaller business CFO, may also have accountability for IT, strategy, risk management, M&A, ESG, business transformation initiatives, procurement, and/or operational roles.
It’s a lucky CFO who doesn’t already have a lean team with gaps in knowledge and skills. To that end, audit your current team, identify gaps, and devise a plan to fill any gaps by developing internal staff or hiring new talent. To recruit high-caliber talent, network to create a quality pipeline, offer enticing opportunities, demand a diverse pool of candidates, and “sell” your company during the interview process.
To retain new hires and existing talent alike, create a welcoming culture and invest in your team’s development, providing ongoing feedback, access to upskilling opportunities, and timely advancement. Finally, if needed, augment the internal team with fractional CFO or other outsourcing support.