Expert CFOs share 4 finance trends for 2021
Companies spent most of 2020 scrambling, adjusting, and learning on the fly. For some, it was a painful year that should never be spoken of again. For others, remote work and teleconferencing brought incredible growth. (Those companies know who they are.)
For those lucky enough to escape 2020 in one piece, it was a chance to update old processes and zero in on what makes them viable businesses. And finance teams led the way.
From tighter spend controls to endless reforecasting, CFOs had to steer the ship through choppy waters. And the hard-fought lessons from 2020 have now become best practices for the year to come.
We asked 20+ top leaders from our CFO Connect community to share their biggest finance trends for 2021. This article is a brief summary of four of the biggest trends. The details, hands-on tips, and extra trends are all in our free guide:
Increased focus on cash management
If there was one cliché to rule them all in 2020 it was “cash is king.” And with good reason. With economies shrinking and consumers less sure of their future income, revenues became harder to rely on.
Which meant companies had to pay closer attention to where their own money went. As CFO on-demand Jana Scharfschwerdt explained back in April 2020, “Many companies, if not all of them, are currently optimizing on cash because there's so much uncertainty. So it's actually good advice to plan cost-cutting measures for the worst of the worst. And everything that comes on top of it revenue-wise is then a gift.”
And for at least the first half of 2021, this isn’t going to change. Countries will slowly start to open up in the spring and summer, but businesses still won’t know what to expect for some time. So controlling company spending is crucial.
Here are five precise actions to take.
1. Create a crisis plan for cash management
With a turbulent year already under your belt, there’s no excuse to be caught flat footed when the next crisis hits. Build a “Business Cash Plan” (in Excel or your tool of choice), which sets out the key drivers of your typical P&L statement.
This should include:
Key suppliers to contact - more on this shortly
Revenue streams likely impacted by future lockdowns
Discretionary expenses to cut, versus non-optional costs
Most important, you should know how you’ll measure the impact of a new crisis, and where you can find the data you’ll need.
2. Ensure easy-to-access financial data
To manage cash flow expertly, you need to know where the money is going. Which means the better your data sources and reporting, the more in-control you’ll be during crisis moments.
And the worst time to realize you don’t have the data you need is when you’re knee-deep in a crisis. Take time to ensure you can measure impact quickly and easily, and that all the key stakeholders in the business can do the same.
Can budget managers easily track their teams’ spending? Do average employees understand how their investments affect company performance?
Many companies put a special emphasis on financial literacy in 2020. Keep this positive momentum up.
3. Open communications with suppliers
When the pandemic first hit, businesses didn’t know what its eventual impact would be. But in those early days and weeks, the first step for CFOs was to establish good communications with key suppliers.
It’s no good for anyone involved to have you default on rent or utilities payments, for example. Landlords may be willing to delay payments or find other workarounds in times of need.
And because you’ll need these healthy relationships in difficult times, make an effort to always get along well with those who keep the lights on.
4. Find short-term advantages
It’s also entirely possible that you’ll find yourself in better shape than those key suppliers. Vendors are also likely struggling during times of crisis. Which can present an opportunity for you to renegotiate and secure better rates.
As mentioned above, there are still tough times ahead. You may be able to lock in good deals with suppliers in exchange for an up-front commitment or payment in cash.
CFOs should be creative while there are opportunities out there. It’s not “business as usual” for almost anyone, including your key suppliers.
5. Explore government assistance
Most countries have seen various government schemes to support businesses during the Covid crisis. Even with hopes that the pandemic will end in 2021, economies will likely still struggle, and government support will continue in one form or another.
So the best practice here is simple: make sure you understand the rules and regulations set out by governments, and see how some allowances may benefit you.
At the same time, we believe that most assistance should go to companies that truly need it. So be responsible, but be smart.
Rapid forecasting & budgets
Across all of our CFO Connect virtual events in 2020, perhaps the most-discussed topic was forecasting. Audiences wanted to know how the experts were approaching forecasts.
CFO Connect ran a survey in November 2020 to gather members’ feelings about the pandemic at the end of the year compared with earlier. By November, forecasts had replaced cash management as the biggest challenge CFOs faced:
As Quentin Servais Laval, Finance & Operations Director at Double, says:
“[With Covid], the finance role in general has been put more into the spotlight as you’re truly focusing on the viability of organizations. First is a very heavy focus on forecasting. As soon as the crisis started, we looked at how our growth was starting to be impacted and how we could build scenarios to reach our business objectives while being financially strong and sound.”
So how can you be more confident about forecasting in 2021?
1. Find your growth levers
It’s critical to understand the key factors that ensure your company’s success. If a future crisis hits (or new lockdowns are put in place), what will be the biggest problem areas for your business? And what are the indicators that you can control (to some extent)?
This helps to keep forecasts focused. Rather than listing every single possible factor and its corresponding effect, identify the most important ones and stick to these. The more likely they are to influence growth (positive or negative), the more important they are to your forecast.
2. Set your forecasting rhythm
Businesses everywhere began furiously reforecasting during the Covid pandemic, and likely never stopped. This reflects just how uncertain 2020 has been.
In 2021, companies will likely keep reforecasting at a higher rate than they did in the 2010s. But it’s important not to get carried away. Set a steady rhythm - once a month is about right - and don’t get too carried away by short term fluctuations and new announcements.
The alternative, of course, is to build a process that means you can create a forecast in moments. Mews CFO Pavla Munzarova explains “something that makes you stay ahead of the game is to have quick access to your financials. In our case, the readiness of our data helped us pull our P&Ls forecasts almost instantly.”
So those are your two main options: regular (but not too regular) forecasts, or have reporting that’s ready whenever you need it.
3. Build forecasts from the bottom up
“I think the most important thing in all the scenario planning is that everything now is bottom-up,” says Alka Tandan, VP Finance at Gainsight. “That means taking cues from your own data.”
Again we come back to good data. Your forecasts should be built on information coming from within your own organization more than external factors you can’t control.
In other words, forecasts that are built largely on assumptions are going to be less valuable in the near future. Forecast based on what you know.
4. Keep your forecasts focused
This last tip sort of encapsulates the others above. Some finance teams may feel that the only answer to the current uncertainty is to forecast furiously whenever possible. We talked above about the need to forecast regularly, but you should also be smart about it.
Not every possible outcome or minor update needs to be part of your projections. And while access to data is important, not all data needs to be used. Go back to those growth levers we mentioned earlier.
With all this emphasis on forecasting, it may not pay to consider every foreseeable outcome. In fact, there are risks associated with over-forecasting, too.
Besides, you’ll be reforecasting in a few weeks anyway.
New tools & more automation
“Cloud computing is not new,” says Felipe Tunnell, VP of Finance at Holded. “It's a trend that has been going on for over a decade. Yet many in the finance industry still use on-premise software, such as legacy ERPs. They’re expensive, and difficult to use, maintain and update.”
“Now that the COVID-19 crisis has hit we need cloud software more than ever. In today’s distributed world, it makes sense to have information accessible from anywhere.”
Whether it’s with cloud tools specifically, or just more automation built into processes, CFOs have been finding ways to work more efficiently this year. And particularly with distributed teams, finance can’t afford to stick to slow, paper processes.
1. Identify processes that need updating
Your goal should be to identify and replace any processes that increase administrative work, create friction (especially while remote), and that won’t scale. Which can sometimes be difficult where people are used to a certain way of working.
The good news is that the slowest and most tedious processes tend to identify themselves. Any finance team member will tell you which aspects of the job they like the least and would love to see overhauled.
So finding the sticking points is usually fairly straightforward. Next, you need to figure out what to do about them.
2. Automate as much as possible
There are too many tasks in the finance portfolio that still involve manual data entry and cross referencing. We like to think that “human intuition” and past experience mean that these slow jobs produce better results.
But often these tasks are low-value adding. And computers can do them, faster, more accurately, and produce the same results every single time. Which should be the goal.
3. When in doubt, use the cloud
Today, good tools can be used from anywhere. It’s no use having state of the art software in the office if you can’t get your hands on it.
This was particularly important in 2020, and will certainly continue to be in 2021. Key finance processes should be able to continue as normal whether your team is physically present or not.
Which is why CFOs should look to make as many processes cloud-based as possible.
4. Ensure that vital company tools work together
A CFO Connect & Spendesk poll in 2020 made a somewhat startling finding:
57% of companies believe they have “average quality” financial data
23% of companies believe they have “poor quality” financial data
For the most part, the problem here isn’t that the data doesn’t exist for companies - they just can’t access it easily. That could be a result of paper-based processes where teams have to go searching for answers.
But more likely, it’s due to having different tools not talking to one another. Real-time updates and tool integrations will be particularly important for finance team success in 2021.
More modern approaches to “the office”
Large portions of 2020 were spent working fully remotely, locked down, and with no physical contact. And while many businesses intend to head right back into the office the moment it’s safe, this pandemic gave CFOs the nudge they needed to rethink whether their standard work routines were really best for the long term.
Do you really want to commit to large rents in 2021? And now that employees have had a serious taste for teleworking, will they want to continue in some form for good?
While most of our experts feel that the office is far from dead, they recognize that new perspectives and policies are necessary.
1. Embrace remote work
If there’s one benefit to come from 2020, it’s that companies now know how effective remote work can be. It’s not the perfect solution for every employee, but companies should have clear remote policies in place. And teams can actually feel confident using them.
Companies can expect to have more employees working part time from home. A few days a week for focused work away from the office makes a lot of sense for some.
Meanwhile, others may have realized that city life doesn’t suit them, and become accustomed to being away from headquarters altogether.
As leaders of payroll and HR teams, CFOs need to think hard about the permanent remote policy once things go back to normal. And in many cases, the best outcome is what works for employees first.
2. Prioritize remote processes
It’s not enough to simply admit that remote work is possible. Team members need to understand that remote work will be the norm - at least for some people. So processes need to be remote-friendly, even when some teams are back in the office.
This means embracing those cloud tools we talked about above. But also better asynchronous communication, and the right ways for managers to oversee distributed teams.
3. Use flexible tools
2020 was the year that businesses got truly comfortable with using Zoom, Slack, and Microsoft Teams. Communication is so important while remote, and these platforms (and their peers) were the first investments for many businesses.
But there are plenty of processes beyond meetings which require good solutions. And for finance teams, there’s no reason why you can’t always be remote-ready. Think about your accounting and spend management tools, and ensure they work for all employees from everywhere.
It’s no good still relying on paper expense reports, for example, if most employees don’t have a printer or scanner. That’s an obvious example, but you’ll find plenty of others that need updating before you’re truly remote-friendly.
4. Hire remote-capable talent
For finance teams lucky enough to be hiring, it’s now vital to consider the work conditions that candidates will find themselves in. Can you identify and attract staff capable of performing from home, if need be?
At the very least, they’ll have to interact with and assist plenty of other staff in remote locations, and they need to be able to do this comfortably.
Zappi CFO Jimmy Vassilas feels that “the qualities are really around somebody who can be self motivated, a self starter, can really get stuff done without too much oversight. But in the beginning you’ve got to establish the rules of engagement, set out exactly what the deliverables are, what the expectation is, so that they know where they stand.”
“I think it’s also important to get them to speak to somebody else on the leadership team - not just finance - and see how they perform with questions that are potentially unrelated to finance. See how they respond. I try to flush out the positive attitude and the curiosity they have. Because those are the two criteria that I think almost trump everything.”
Craft your finance strategy around these trends
Those were the key trends for 2021 according to leading CFOs. Your company will already have achieved some of these, particularly given the chaos and challenges in 2020.
As you build your roadmap for 2021, keep these ideas in mind.
In many ways, finance hasn’t changed massively over the past year. But new constraints to budgets, revenues, and physical proximity have meant teams need to adjust.
And based on the lessons learned - in some cases “the hard way” - we now know exactly how to prepare for 2021.