Every economic downturn is different, but all downturns and recessions have one thing in common: They are all followed by recovery. The great chief financial officers (CFOs) I work with prepare for the best of times -- and the worst of times -- at the same time.  

The hardest thing to deal with in a recession or downturn is the fear of the unknown. This fear may push CFOs to take a conservative approach, falling back on tried-and-true solutions such as cost-cutting (which may include pausing recruitment, stopping discretionary projects, laying off workers or cutting the travel and expense budget) or cash preservation (renegotiating payment terms, drawing down inventory, slowing down CapEx projects or tapping credit lines). 

These actions may be necessary in some circumstances, but they are not enough to return a company to profitability. And they are not sustainable; no company can live on a steady diet of layoffs, budget cuts and deferred spending.

Rather than cutting and cutting, I find that leading CFOs take four distinct steps to prepare for recessions and clear the path for a quick return to prosperity.

1. Communicate with stakeholders  

The CFO is the economic guardian of the enterprise and should tell a clear story. Let customers know that they come first, that you are open for business and that you remain an economically viable enterprise. It’s also important to convey that you care about them as people, and about their issues as your business partners.

It’s also essential to communicate sympathy and compassion for your employees and your suppliers. You need to combat the impression that CFO-led decisions are all about the money. This is particularly true for the front-line employees who interact directly with customers in their ordering, fulfillment, and service capabilities.

Markets and banks need to know how you are managing the downturn, as well. Be transparent about what you don’t know yet but make it evident that you have a sound longer-term strategy. 

2. Conduct scenario and contingency planning

While most CFOs and their teams are quite capable at planning scenarios within a narrow band of likely business results, they have not always pressure tested their ability to thrive in uncertain times such as I am seeing now. Focus on areas most affected by recessions to stress test, plan scenarios and build economic models. These include:

  • Cost and inventory implications to deal with demand variability and supply chain flexibility for short-term demand spikes
  • Governance of logistics spend and expediting costs
  • Scalability (up and down) of IT application and infrastructure while maintaining security
  • Monitoring customer credit risk, increasing DSO for customers and reviewing DPO reductions from vendors facing a cash crunch

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No company can live on a steady diet of layoffs, budget cuts and deferred spending. Broadening priority actions beyond short-term cost reductions can help a CFO reposition the enterprise in the face of the uncertainty during a recession. 


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3. Leverage newfound optionality

As CFOs increasingly become the primary partner of CEOs in crafting the business strategy at the enterprise level, recessions can be a time to ask pointed questions about key aspects of the business strategy. For example, depending on financial constraints and market conditions, are there unique M&A opportunities? Is the ecosystem sufficiently disrupted so that there are new partnering opportunities? Are suppliers offering lucrative long-term deals?

Internally, what are contingency plans for structural changes that make sense to activate now (such as closing production facilities, rationalizing office space and others)? More importantly, how can you use the crisis of a recession to help reset the culture, bringing diverse functions together to accelerate innovation? All these elements allow the CFO and the enterprise to take advantage of opportunity and actively lead from the front.

4. Activate your people

As sure as the spring will follow the winter, prosperity and economic growth will follow recession. This philosophy liberates CFOs to think about what comes next, and what they should do in preparing for a recession that will provide greater flexibility and more options in the future. 

For most enterprises, tough times put a greater emphasis on talent. Use the special circumstances a recession creates to allow more than just the high performers to engage in challenges that will build skills, stretch existing capabilities, and offer greater visibility to leadership. You can do this in a number of ways, including by including them in your research and inputs for scenario and economic modeling, or your business strategy refresh and pivot. This can empower and uplift a broader swath of your talent base, developing people who will be invested and eager to contribute as you manage through the recession and back into growth mode.

Broadening priority actions beyond short-term cost reductions can help a CFO reposition the enterprise in the face of the uncertainty during a recession. It can also help enable the CFO to move from playing defense to playing offense, shifting the message from retreat and retrenchment to narrative about overcoming obstacles, building new capabilities and repositioning for a new environment.   

Thomas Biltz

Principal Director - Accenture CFO & Enterprise Value

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