How the permacrisis era is reshaping the finance function

Three-plus years of relentless uncertainty have prompted financial managers to approach their work differently from how they did before Covid. What’s more, their organisations are placing new demands on them
View of the City of London from the south side of the Thames

Adaptability, ingenuity and resilience have been the watchwords for businesses as they operate in a world that seems to have been in a perpetual state of crisis ever since the arrival of Covid-19.

The challenges of coping with the pandemic and further serious problems such as the energy crisis, supply chain disruption and the return of high inflation have prompted fundamental shifts in how some finance departments act as stewards of corporate capital. This unrelenting barrage since 2020 has prompted them to take a broader view of business risk, liquidity management, scenario planning and other key aspects of their work.

Moreover, other business functions are coming to view the finance team as a valued ally that should be constantly involved in projects, rather than a dispassionate arbiter to be shown only fully formed plans to approve or veto.

Engagement across the organisation

Some senior finance professionals believe that the constant challenges of the 2020s so far have obliged their teams to improve the quality and quantity of their communications, both internally and with the rest of the organisation. This has altered both how financial managers approach their work and how their non-financial colleagues perceive them.

A sense of community has prevailed, with everyone in the supply chain working together so that as many members can survive as possible

Fionán Dunne, CFO at identity-verification specialist ID-Pal, is one of them. He says: “Finance people have traditionally focused on efficiency, but there’s been a realisation that they must take a broader view. Having spoken to peers, I think that our function has become much more engaged across the organisation and it’s getting involved in projects at an earlier stage. We’re coming to be viewed as collaborators rather than gatekeepers.”

Dunne adds that finance teams are more routinely taking a “business first, numbers second” approach. By this, he means that they’re balancing their core responsibilities of fiscal prudence against the growing onus on them to help the enterprise achieve its commercial objectives in difficult trading conditions.

Prioritising the wider business strategy

By taking a broader view of the organisation and its markets, a finance team can analyse, support or make choices in alignment with the corporate strategy.

Claire Trachet is the CFO of bug bounty platform YesWeHack and an independent consultant who specialises in advising hi-tech scale-ups. She says that, having weathered various crises, corporate finance teams are treating matters such as expenditure and liquidity more holistically. For instance, an FD might favour taking out a short-term lease on an office that may be more costly than a longer one, yet offers the business more flexibility than it would otherwise have.

Trachet believes that CFOs are “even more strategic” than they were before the pandemic – and that their increased involvement in corporate decision-making is a generally positive trend. She adds that scenario planning has become more comprehensive since the Covid crisis, with finance teams considering a wider range of potential situations and responses.

“Deciding where to focus your firm’s resources is vital to giving it a good chance of success,” Trachet says. “Businesses are trying fewer things but they’re putting the right resources behind these efforts. This is about managing risk from a cash and opportunity perspective.”

Julien Lafouge, CFO at software developer Spendesk, says that the number and scale of the problems that most firms have faced over the past few years should have made them wary of prioritising growth at all costs. When problems are coming at you thick and fast, it’s important to retain a reasonable amount of liquidity, he argues. 

“One lesson that holds true for everyone is that you should raise money whenever you can, even when you don’t think you’ll need it all imminently,” Lafouge says. “The better capitalised you are, the better you’ll be placed to go through any type of crisis.”

He points out that, even in exceptionally difficult markets, funding is usually available for the right businesses, adding that “the winners going out of a crisis are very often determined by what they do during that crisis”.

Spendesk, for instance, is establishing a presence in both Spain and Italy, despite the economic uncertainty. The business believes that it will have solid foundations to build upon in those markets when trading conditions eventually improve.

The need for liquidity awareness

In light of the recent collapses of Silicon Valley Bank (SVB) and Credit Suisse, many corporate finance teams have yet another risk to address. They must decide not only how to spend the cash their firms have raised, but also where they can safely deposit that money while they consider their options.

Our function has become more engaged across the spectrum and it’s getting involved in projects at an earlier stage

“When I was in San Francisco recently, SVB was the talk of the town,” reports Andrew Birch, co-founder and CEO of OpenSolar, a developer of free software for solar tech installers. “Young firms used to feel positive after raising money. But, given what happened to SVB and Credit Suisse, every startup has a finance team scrambling to open new bank accounts.”

He continues: “They’re putting cash into money market funds and US Treasury securities, which they wouldn’t even have considered a few months ago. But now they see a bank run, which can happen overnight, as an existential threat.”

Birch stresses that financial flexibility has become a “big thing” for firms, adding that the “core lesson of the recent drama has been that revenues can drop very quickly. Having minimal fixed costs is a crucial aspect of surviving as a startup.”

Shared experiences and a sense of community

Have larger companies been reacting to such problems in a similar way? 

“It’s incremental, in that they’re more likely to be managing the portion of costs that are fixed rather than recreating the business,” Birch says.

Nonetheless, businesses of all types and sizes are trying to amass larger liquidity buffers where they can and are focusing more closely on cash, according to Dunne. This defensive response could partly dictate how finance teams approach their work over the next few years. 

He adds that “a sense of community has also prevailed more than it would have done before the pandemic. This has manifested itself in suppliers helping out their customers, with everyone in the supply chain working together so that as many members of it can survive as possible. That builds loyalty and will help in the future.”