The last few months reiterated just how important sustainable growth is. Some of the world’s most prominent tech businesses have fallen foul of mass layoffs. Years of debt-fuelled growth did not account for a perfect economic storm of COVID, conflict and inflation.
Some high-growth businesses shed more than 10% of their workforce overnight. Twitter is an extreme example, with Elon Musk laying off around 50% of the entire company’s staff.
Several CEOs of affected companies have made public statements saying they are reengineering their businesses to meet growth needs, but just not on the scale of what they previously thought was possible.
Rising inflation and the war in Ukraine have spooked the markets, and the days of cheap money are long gone. This is backed up by a recent survey from ICAEW, revealing that one in five of their member businesses highlights access to capital as a problem – the highest since Q1 2013.
In response to this drastic economic shift, CFOs must show leadership by reviewing budgets to achieve more with limited resources.
IT can be a huge driver for efficiency, with Gartner analysts believing that digital investments can help companies deliver sustainable growth during today’s turbulent times.
Leveraging insights from real-time data provided by tech that automates and streamlines financial processes can enable sustainable growth. You should make data-driven decisions from outputs to finetune your go-to-market strategy and become self-reliant, so you are not pressured to raise additional capital for further growth.
It may seem counterintuitive, but investing in your company’s IT can reduce costs. Deploying funds in automation-led accounting tools and operational technology can be more capital efficient than hiring additional staff to fulfil tasks manually.
Research from Gartner shows that there is still a substantial unmet need for companies to maximise investments in this area. A recent survey shows that only 31% of employees have the necessary technology to complete their jobs sufficiently.
While you’ll likely already be using a cloud accounting software package, you should also integrate third-party tools that connect directly so that as many of your processes as possible are automated.
Areas to consider are expense and spend management, inventory, invoicing and group consolidations. These tools are available on the app marketplaces of accounting software vendors and use their APIs so that data can flow in and out.
This is faster than completing tasks manually, and data accuracy will be higher due to minimising the risk of human errors.
The increased availability of real-time data, powered by enhanced IT investment, creates opportunities for you to make agile business decisions – both across the finance function and also by partnering with the C suite on strategy.
You’ll no longer have to make decisions on a hunch and instead can decide how to best allocate spending in areas that will generate the highest ROI.
This may include doubling down on the production of a profitable product line or withdrawing from a geographical market due to poor sales. An effective way of doing this can be by setting KPIs across the business and having these presented on business dashboards.
These can be set up on cloud analytics software packages such as Microsoft BI, Tableau and Looker, which are accessible 24/7 on mobile devices. You’ll need to build out KPIs specific to the sector you operate in. If you’re a digital business, this is likely to include the cost of customer acquisition, lifetime value and attrition rates.
If your business retails physical goods, operate a lean supply chain. This lets you be responsive to customers’ needs and frees up funds tied up in excess and/or unsellable stock.
Made.com, a made-to-order furniture e-commerce platform, recently went into administration for this very reason.
Once valued at over £700m, the business changed its model during COVID due to disrupted supply chains. It reversed its original approach and held significant stock levels of its most popular lines. Made transformed itself into a capital intensive, almost quite traditional retailer. When consumer demand declined, however, it was over-leveraged.
CFOs can learn from this mistake by minimising inventory and operating lean supply chains by sourcing items just as they are needed. To maintain positive relations with key suppliers, also ensure you pay them on time so your supply chain is not disrupted.
The best way to demonstrate a sustainable business is by being profitable in your own right rather than by seeking capital injections.
As it has become increasingly difficult to access capital investment, you should consider changing your model so your company can meet its financial obligations without needing to access further investment rounds.
While you still may be able to access funding, this is likely to be on less favourable terms, so there is the risk of participating in a down round, with the founders and existing shareholders seeing the value of their equity drop in value.
If you cannot pivot your business model to break-even, take on debt financing instead of equity. Interest rates on loans are predicted to increase sharply, but these financing costs are tax deductible and will allow founders to retain a more significant proportion of their equity.
Every cloud has a silver lining. Switching to a sustainable growth strategy will allow you to cut excessive spend across the business and potentially make your company become more profitable and valuable over the longer term.