As we approach 2 years since the start of the pandemic, it’s safe to say that most professional long term predictions have been shaky at best. The unpredictability of the pandemic along with market volatility in a global economy has made for some unprecedented financial challenges.
In addition, unemployment is low, yet companies are still scrambling to retain and recruit employees. The Great Resignation and the talent scramble does not seem to be letting up despite the relative return to stability of other market aspects. Lastly, inflation is a 2022 wild card. Will it level out sooner rather than later? Or will the record breaking inflation rate continue deep into the year?
With half of Quarter 1 in the books and the dream of stability still on the forefront of everyone’s minds, 2022 is going to be a pivotal year for finance team, and CFOs in particular. The 3 financial realms pertaining to CFOs come with many challenges, but also provide opportunities for those who stay on top of the ball.
1) The Great Resignation and Talent Problem
One of the most worrying trends from the past few years is the talent problem and worker shortage. Many executives find this to be the most concerning issue out of all of them because without the right talent, a business simply can’t run. In addition, this challenge is no longer directly connected to the pandemic, and the size and scale of this issue is in unseen territory, making it extremely difficult to predict.
As a CFO, this problem is multi pronged:
CFOs are executives who need to worry about having enough talent on board- specifically for those under their jurisdiction in the finance department, but also in the company as a whole.
Having to pay more for recruiting or retaining employees directly affects the company’s finances. This puts more pressure on the CFO, as it is yet another element to keep in mind when budgeting and forecasting.
As an indirect repercussion, the unstable labor market contributes to increased volatility across the board. CFOs need to keep in mind that even if their organization has been able to fill all of the needed positions, there might be others who haven’t. This can affect the supply chain and services along with manufacturing prices.
This issue is not something that can be ignored, as companies are forced to rethink how they deal with it. Raising salaries, more flexibility, and upskilling are a few of the options, and some companies are even doing biannual valuations and pay raises, something unheard of only a few years ago.
CFOs must adapt and realize that this problem is all encompassing. It affects internal and external operations, feeds inflation, and sometimes requires reshaping the structure and character of the organization.
2) Automation and Technology Scramble
Once again, the instability of the pandemic has accelerated a trend, and this time it highlights the reliance on technology. Remote work, cybersecurity risks, and the struggle to find talent, all created the scramble to adopt the most efficient technology and automation for each company.
A recent study by the University of Baltimore and DataRails shows that bad use of FP&A and not implementing efficient automation costs U.S. companies alone $7.8 billion each year! FP&A automation solutions, such as DataRails, provide a platform for easily maneuvering into automation by consolidating all the financial data into one source, while keeping the implementation time short.
This takes care of 2 problems at once. Keeping up to date with the competition in financial outlook perspectives will provide the best possible forecasting scenarios for each organization, including hard-to-predict volatility and real time updates. In addition, it will help solve the problem of talent retention by freeing up time from manual inputs and giving employees more time to analyze and use their knowledge- or even upskill.
The original volatility shock created a setting where executives did not want to implement new, and sometimes costly changes, but that attitude is changing. 2022 is the year for CFOs to switch from survival mode to long term planning, and there is no doubt that financial automation is crucial in this process.
3) The Inflation Infiltration
When will inflation end? This the question of the year, and one that there is no clear answer to. While many wanted to believe that inflation was transitory and would subside when the pandemic balances out, many finance chiefs have indicated that they believe that inflation and high costs will last well into 2022.
With US inflation rates hovering around 7% for much of 2021, businesses of all sizes and sectors were forced to raise prices. The supply chain crisis and worker shortage added fuel to the fire and even when inflation stabilizes, higher materials and transportation will linger as product prices catch up with operating expenses.
As a follow up to inflation, the impending Federal interest rate liftoff will have a direct effect on the market. Between 3 and 7 different rate hikes are expected in the near future and this will affect CFOs in many different ways.
With rising interest rates, investors tend to take a less risky approach, and valuations can fall as well. After an overreliance on Federal lending, being prepared for the change is critical.
If a company is looking to borrow or invest, then the knowledge of impending rate hikes might be enough to push CFOs to take action now. Although the exact timing and numbers are unknown, the Fed raising interest rates is the most predictable financial effect out of all of the 2022 factors, and therefore the easiest one to act on.
Conclusion
CFOs face many challenges in the pivotal year of 2022. While most of them are outside influences with very limited ways to control them, CFOs can be as prepared as possible by both knowing what is coming and how it affects the company. Implementing financial automation is a great start, as this provides an efficient path to budgeting and forecasting for the future, while simultaneously contributing to retaining talent. 2022 financial predictions vary widely but being prepared for all the possibilities is key to success.