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You may have noticed it: This is a strange moment for businesses. On the one hand, economic growth is skyrocketing across the board. Demand is through the roof, and more and more people are attempting to get their lives back to some semblance of normal after more than two years of waiting for this pandemic to end. The current economic climate has given many businesses incredible opportunities.
On the other hand, significant financial challenges remain. The twin issues of inflation and workforce shortage are driving expenses, costing revenue, and making it harder for businesses to operate. These challenges mean that Chief Financial Officers, Chief Revenue Officers, and related positions have to manage even more significant challenges.
The challenges are real, but so are the opportunities. As such, here are five things that all CFOs should know today.
The Differential Impact of Inflation
You don’t need us to tell you about how everything is getting more expensive, nor do you need a Ph. D. in economics to understand the massive impact inflation has on businesses and consumers across the world. However, it would help if you kept in mind that inflation is not a uniform process. This, in turn, can have a significant impact on your operations.
Of course, inflation is increasing across the board. At the moment, the annual inflation calculator is 8.5%. This impact is being felt in every sector of the economy. It also reduces the purchasing power of the average consumer and business, who now have to spend more to get the same value they were previously getting.
However, it would be foolish for any revenue officer to assume that inflation occurred evenly. The most recent data shows that energy, food, and vehicle-related costs have been hit particularly badly by the significant rise in inflation. On the flip side, medicare care, alcohol, shelter, and apparel are all showingcomparatively slow growth in inflation. If you collect revenue in these areas, you may not be experiencing the same degree of spikes.
What does this mean from a revenue perspective? Your revenues may be going up, but your costs are likely increasing at a more-than-commiserate rate. The increase in inflation has not slowed down and pressures businesses to make a tough choice: Do you try to increase revenue by raising prices or cutting costs elsewhere to keep your margins the same? Alternatively, can you shift your revenue or expenditure collections to an area where inflation is not as impactful? There is no set answer, of course. However, these are items that you will have to examine.
Labor Shortages and Revenue Collections
The massive labor shortage that has existed since COVID-19 first hit shows zero signs of abating. This creates significant pressure on businesses looking to fill job vacancies and get people in their offices without spending an arm and a leg on staffing-related costs. While some sectors have been hit harder than others, virtually none has escaped this staffing shortage.
This shortage has also hit areas like finance and accounting, as people are also leaving these fields for more profitable and less stressful jobs. This has led to staffing shortages across the entire revenue field, and the numbers are stark: According to a September 2021 survey, 95% of CFOs were having a harder time fulfilling jobs. The impact on revenue collection operations is massive: It may make it harder to track outstanding revenue, properly bill, or spot trends within the financial world. As more and more CFOs adjust to the so-called “new normal,” they are forced to consider alternative ways to structure their offices to meet demand. This, in turn, leads to our next trend.
The Rise of Automation
There is no question that the trend of rapidly accelerating automation within the revenue industry has accelerated over the past decade. Already, more and more automated functions were improving CFO and DevOps in a variety of ways, including:
- Relying on tech tools to keep in better touch with other departments, making revenue operations less siloed and more interconnected within a larger organization.
- Using data analytics to show trends and make better predictions about where revenue will come from and when it will arrive.
- Automated collections, refunds, and customer service, thus allowing for limited resources to be redeployed elsewhere.
- Increased use of and reliance on algorithms to make calculations and identify weaknesses within an operation.
- Use of advanced technology to move from the need to manually generate or create reports to real-time data and analytics.
However, as noted above, the lack of available labor has dramatically increased the need for automation within the revenue collections sector. The reason for this trend is simple: Many CFOs simply don’t have the supporting staff and have been forced to increasingly rely on automation to pick up the slack caused by a lack of human talent. Of course, in many cases, once CFOs shift to computers, they don’t go back. This means that many companies will permanently rely on computers to fulfill the roles once occupied by humans.
Growing Responsibilities
A report from McKinsey consulting shows a brutal new reality: Not only are CFOs having a harder time than ever fulfilling critical jobs, but they are feeling overextended as CFO responsibilities continue to expand.
According to the report, CFOs have consistently felt the need to expand into new areas that were not traditionally considered to operate under their portfolios. This includes investor relations, postmerger integration, working directly with their corporate boards, making purchases, and more. This adds additional pressure to an already overburdened office, making it even harder for many CFOs to fulfill the basic components of their job.
Projection Challenges
One of the chief job responsibilities that many CFOs have to fulfill is revenue forecasting and projection. In the best of circumstances, this is a difficult job, one that often feels more likely art than science. However, the events of the past two years have made forecasting an even more impossible task. Consider the three difficulties currently affecting virtually all sectors of the economy:
- Rapidly increasing inflation is hitting sectors of the economy differently, making estimating costs and prices very difficult.
- A still-smoldering pandemic that threatens to mutate at any moment, further paralyzing the world, taking workers out of the workforce, and tying up supply chains.
- An ongoing war in Europe has made shipping raw goods a nightmare and threatens to expand beyond this isolated conflict.
These issues simultaneously make it harder than ever to forecast revenue while also demonstrating the clear need to do so to appropriately plan for a changing world.
If you are in revenue, you know the importance of getting the most accurate revenue forecasts possible. If you are looking for help to empower your revenue operations, collect more money and grow your forecasting ability, ForecastEra is here to help. We offer a variety of unique tools and forecasting mechanisms that can help grow your business and ensure that you are doing a better job of forecasting revenue projections. Want more information? Contact us today to schedule a demo.