What should CFOs focus on in 2023?
As CFOs review the last financial year and look further ahead into 2023, it's important to consider what their main focus should be to grow revenues. As the business landscape continues to evolve and change, CFOs should continue to carefully review which costs are essential to increase revenues and which can be cut without impacting the business. By understanding what to prioritize and what investments to make, CFOs can ensure their organizations can navigate ongoing market turbulence and be well-positioned for long-term growth.
Service Performance Insight (SPI Research) has produced its 16th annual benchmark – The 2023 Professional Services Maturity™ Benchmark Report, which is a comprehensive study of the global professional services organizations (PSOs) industry and provides in-depth analysis and insights for organizations. In this article, we'll explore what the report indicates that CFOs in PSOs should focus on in 2023 to maximize revenues and improve their company's bottom line.
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The global economic outlook
The global economic outlook for 2023 is still unclear. Many economies across the world are showing signs of slowing growth, while a few are experiencing record growth. CFOs should pay close attention to the potential of a recession and what that would mean for their organization's finances. Some regions have already begun to experience rising inflation, which means controlling costs is essential. Technology solutions can help reduce costs and improve long-term efficiency by analyzing where the company is spending and determining where savings can be made. As the global economy begins to recover post-pandemic, rising inflation and interest rates could have an impact on a company's cash flow. CFOs should be sure to monitor these changes and plan accordingly.
Despite the SPI report stating that “sales and G&A (general and administrative) expenses went down by 19%, which helped PSOs achieve slightly higher profitability in 2022”, there is still much to be done to increase profitability and revenue growth over the next 12 months. Every other financial KPI went down in 2022, highlighting a need for better planning of revenue and margins and a tactical strategy to achieve better results.
CFOs also need to prepare their companies for potentially complex risk scenarios, including recession, inflation, geopolitical turmoil, and increased cybersecurity risks. By leveraging more agile, data-driven scenario management, they can map out the potential impacts of the risks and make informed decisions about where savings can be made with the least negative impact on the business. With the help of technology solutions, they can make sure their company is well prepared for whatever the global economy throws at them and can respond with agility.
The rise of digital transformation
In today's economy, digital transformation is becoming increasingly important for PSOs to keep up with the competition. Digital transformation allows PSOs to leverage the power of technology solutions to create new efficiencies and improve customer experiences, ultimately leading to increased revenue. By transitioning to the cloud, PSOs can potentially remove the hassle of maintaining and updating systems, allowing an organization to invest time and resources in driving organizational strategy.
The benefits of digital transformation include improved collaboration, enhanced customer service, and better data analysis. Additionally, cloud-based software solutions offer greater scalability and flexibility, allowing PSOs to adapt quickly to changing customer needs. By taking advantage of these digital tools, PSOs can improve their processes and increase their bottom line.
According to SPI, “interviews with CFOs reveal the top selection criteria for business applications include powerful yet easy-to-use reporting capability with mandatory mobile access.”
Digital transformation can provide PSOs with the ability to gain a competitive edge in the marketplace. With access to the latest technology and insights, PSOs can respond more quickly to customer demands and have a more comprehensive understanding of their clients. This knowledge can be used to develop innovative services that will help them stand out from the competition and drive increased revenue.
CFOs should always be looking to optimize general and administrative expenses so they can channel more funds into sales and marketing or innovation, and the only way to do this is to improve processes and improve their technology base. People are an organization’s greatest asset but also a high cost - this can all be monitored and reported on using tools such as workforce planning, part of FP&A, which also draws data from ERP and HCM.
Digital transformation is quickly becoming an integral part of any successful PSO, and by embracing the opportunities that the cloud can offer, businesses can reap the rewards and grow their revenues in 2023 and beyond.
The race for talent
The race for talent continues to rage on, and PSOs are not exempt. This makes it more important than ever for CFOs to focus on strategies to attract and retain top talent. By implementing the right technology solutions, firms can reduce costs without compromising the quality of the services they provide.
SPI state that “(In 2022) direct revenue increased and indirect revenue decreased. Direct labor and fringe benefits increased significantly, putting pressure on margins.” In 2022, 20.5% of survey respondents achieved 100% or more of their annual margin target. PSOs focused more on improving sales and marketing effectiveness and their solution portfolio rather than on profitability. Average consultant annual revenue went down, so CFOs should be monitoring operational success as service excellence and sales delivery equals higher revenue per consultant.
Unit4 offers finance, HR, and planning solutions to help PSOs empower their people and increase service excellence. Our tools provide a comprehensive view of resources and operations, making it easy for organizations to track and monitor complex projects and employee performance and make data-driven decisions. With the right technology in place, CFOs can ensure that their organizations can find and retain top talent and remain competitive in the market.
The changing role of the CFO
The role of the CFO has evolved significantly over the past five years. In a professional services organization, the CFO is now more than just a number cruncher. Instead, they have become business partners who work closely with other departments to ensure the financial and operational success of the organization.
One of the primary goals of a CFO is to identify areas where revenue can be improved. The average reported revenue leakage in 2022 was the highest it has been in 5 years at 4.9%, and when SPI asked leaders which goals they were most focused on for 2023, professional services executives showed almost 40% of their efforts would be on growing revenue, followed by improving profitability. Cutting costs can help here too. With technological advancements, CFOs can better analyze data and pinpoint cost-saving opportunities. Technology solutions such as cloud computing and artificial intelligence are helping CFOs gain deeper insights into their financials, enabling them to make more informed decisions about where to reduce costs and increase profitability.
Another key focus for CFOs is to provide better visibility into the organization's financial performance. This includes developing tools that allow decision-makers to track revenue, expenses, cash flow, and other financial metrics in real-time. By accessing detailed financial information, CFOs can help develop strategies that will drive business growth and increase efficiency.
In addition to these responsibilities, CFOs must also provide guidance on taxation issues and other regulatory matters. They must ensure compliance with all relevant regulations and laws while staying abreast of changes in the industry. They must also maintain strong relationships with investors, banks, creditors, and other stakeholders.
Technology has allowed CFOs to move beyond their traditional transactional role and take on more strategic responsibilities by developing business partnerships. By leveraging data and analytics, they can become true business partners and help organizations achieve their business goals.
How Unit4 can help CFOs prepare for the future
Unit4’s People Experience suite is designed for organizations like yours. This comprehensive solution gives you the tools you need to become the strategic CFO of tomorrow, no matter how your role evolves or grows.
For more findings and insights on the office of the CFO in 2023, check out the new SPI report here.
