BREXIT – HOW CAN COMPANIES STAY IN CONTROL AND WHAT PART SHOULD CFOS PLAY?

By Nick Nesbitt is Consulting Services Director at Tagetik UK

Nick Nesbitt

If ever there was a time for the finance function to demonstrate how its role is becoming more value-adding and strategic, this is it. But what are the key steps and processes that need to be in place to ride out the uncertainty, manage the risks and take advantage of new opportunities as competitors jostle for position in a post-Brexit vote world?

A climate of uncertainty has been surrounding business since Brexit unexpectedly became a reality last June. Business leaders are used to change but Brexit’s implications are far reaching, the main concern being that investment slowdown will lead to a drop in revenue.

Brexit will impact companies operating in the UK on many fronts, from investment to liquidity to exchange rates, hedging, people and mobility. Companies generating profits in pounds will lose on foreign exchange and companies with local teams made up of people from different countries with different expertise will experience uncertainty as to what will happen to their human capital.

At some point the uncertainty over Brexit will dissipate and clarity will return to the market. However, right now, Brexit means without doubt higher risk exposure for companies.

So, how should businesses plan for an environment in which so many of the performance levers are beyond their control and what should CFOs be doing next?

Keep a constant, risk-adjusted planning process

The best way to assess risk is to keep a constant planning process based on the main risk factors. It would for instance make sense to put together a post referendum 3-year plan estimating the impact of the devaluation of the pound on the business and to create strategic planning models where risk factors are linked to currency volatility or any kind of risk your company might have.

Best practice would be to have a multi-year plan (3 to 7 years) based on your business model to give management guidance for the longer term, coupled with operational budgeting to give management guidance for the short term (12 months).

Just to make one example, construction companies may for instance want to simulate the impact of oil price shifts and energy costs on their business using technology with risk adjusted planning models.

Integrate financial data with the main business drivers

CFOs and CEOs need to start speaking the same language. The CFO needs to become more involved in the decision-making process. The financial statement has to be linked together with the business strategy so that the CFO can workas a trusted advisor to the CEO, to support them and help them make better, more informed decisions.

This is however a big challenge. One of the problems is that CFOs are struggling for time because they are too tied to their legacy systems and they do not have time to invest in those systems to release the time they need for analysis. They are spending too much time on spreadsheets and data manipulation and consequently end up having no time to spend on strategic advice.

Improve your ability to analyse data to manage complexity

If ever there was a time to modernise your finance function, this is it. CFOs need a unified corporate performance management (CPM) solution to manage the complexity of a business as a whole. Organisations should not have separate planning and reporting systems, they need to have a holistic, 360-degree view of their business. Investment in flexible technology is necessary to manage operational data, link KPIs to financial data and comply with directives by linking regulatory data to the financial statement.

Conclusion

The FSN Future of the Finance Global Survey found earlier this year that more than a third of top finance professionals rely on gut feeling for senior decision making. This won’t work for Brexit. Decisions has to be based on data.

The best strategy is to be agile and put the right reporting, planning and operational processes and systems in place.  Companies that quickly adapt and react to the changed environment will be those that perform better and benefit the most.

By Nick Nesbitt is Consulting Services Director at Tagetik UK

Nick Nesbitt

If ever there was a time for the finance function to demonstrate how its role is becoming more value-adding and strategic, this is it. But what are the key steps and processes that need to be in place to ride out the uncertainty, manage the risks and take advantage of new opportunities as competitors jostle for position in a post-Brexit vote world?

A climate of uncertainty has been surrounding business since Brexit unexpectedly became a reality last June. Business leaders are used to change but Brexit’s implications are far reaching, the main concern being that investment slowdown will lead to a drop in revenue.

Brexit will impact companies operating in the UK on many fronts, from investment to liquidity to exchange rates, hedging, people and mobility. Companies generating profits in pounds will lose on foreign exchange and companies with local teams made up of people from different countries with different expertise will experience uncertainty as to what will happen to their human capital.

At some point the uncertainty over Brexit will dissipate and clarity will return to the market. However, right now, Brexit means without doubt higher risk exposure for companies.

So, how should businesses plan for an environment in which so many of the performance levers are beyond their control and what should CFOs be doing next?

Keep a constant, risk-adjusted planning process

The best way to assess risk is to keep a constant planning process based on the main risk factors. It would for instance make sense to put together a post referendum 3-year plan estimating the impact of the devaluation of the pound on the business and to create strategic planning models where risk factors are linked to currency volatility or any kind of risk your company might have.

Best practice would be to have a multi-year plan (3 to 7 years) based on your business model to give management guidance for the longer term, coupled with operational budgeting to give management guidance for the short term (12 months).

Just to make one example, construction companies may for instance want to simulate the impact of oil price shifts and energy costs on their business using technology with risk adjusted planning models.

Integrate financial data with the main business drivers

CFOs and CEOs need to start speaking the same language. The CFO needs to become more involved in the decision-making process. The financial statement has to be linked together with the business strategy so that the CFO can workas a trusted advisor to the CEO, to support them and help them make better, more informed decisions.

This is however a big challenge. One of the problems is that CFOs are struggling for time because they are too tied to their legacy systems and they do not have time to invest in those systems to release the time they need for analysis. They are spending too much time on spreadsheets and data manipulation and consequently end up having no time to spend on strategic advice.

Improve your ability to analyse data to manage complexity

If ever there was a time to modernise your finance function, this is it. CFOs need a unified corporate performance management (CPM) solution to manage the complexity of a business as a whole. Organisations should not have separate planning and reporting systems, they need to have a holistic, 360-degree view of their business. Investment in flexible technology is necessary to manage operational data, link KPIs to financial data and comply with directives by linking regulatory data to the financial statement.

Conclusion

The FSN Future of the Finance Global Survey found earlier this year that more than a third of top finance professionals rely on gut feeling for senior decision making. This won’t work for Brexit. Decisions has to be based on data.

The best strategy is to be agile and put the right reporting, planning and operational processes and systems in place.  Companies that quickly adapt and react to the changed environment will be those that perform better and benefit the most.