To The Moon

“Challenging” is probably an understatement to describe how 2022 went for many organisations.

While many have likely experienced at least one recession in their history, few have had to go through the whole gamut of what 2022 brought. Geopolitical tensions, inflation, supply chain disruptions and steep interest rates have caused many organisations to adapt and relook into how they can best respond to these headwinds. What’s more, talks of a possible further economic decline are causing existing recessionary fears to spill into 2023.

Finance & Accounting (F&A) professionals are once again caught in the eye of the storm. Being the designated financial guardians, they play a critical role in helping their organisations navigate through an unpredictable economic climate from a profit and revenue standpoint. They are also best positioned to help companies understand their financial health, especially when it comes to working capital and cash flow.

Below are some key predictions on what’s in store for F&A professionals in the coming year.

1. Cash flow will be in the spotlight in 2023 for F&A, given ongoing inflation, rising interest rates and a potential recession

Economic growth in Asia Pacific is expected to slow down amid tightening global conditions, inflationary pressures and recession fears. In Singapore, the Monetary Authority of Singapore predicts that economic growth will slow ‘below trend’ in 2023, weighed down by key external-facing sectors. The uncertainty surrounding this possibility elevates the need for F&A to focus on cash flow and working capital management priorities.

CFOs can be expected to ask their organisations in 2023 to optimize and maximise cash across the enterprise. In turn, this demand requires F&A professionals to obtain clearer visibility into where cash is originating and exiting the business. A recent global survey of almost 1,500 F&A professionals by BlackLine suggests a lack of significant confidence in cash flow visibility. In Singapore, less than 4% of C-suite and F&A professionals surveyed are completely confident in their visibility over cash.

This is despite nearly two-thirds (61%) of survey respondents in Singapore saying that understanding cash flow in real-time has become more important for their company in 2023. In fact, one of the biggest challenges they face is being able to provide accurate data quickly enough to help the organisation respond to market changes.

The survey also found that more than half (57%) are concerned that customers will have less income to spend, which will affect sales and revenue, while about half (51%) are worried that their organizations will face higher costs.

To mitigate these concerns, F&A professionals will need to seek a better understanding of the timing of accounts receivable to make speedier and more productive interventions, and invest in automated processes and software assisting these strategic working capital aims. Close to half of Singapore respondents (49%) in the BlackLine survey plan to implement or scale working capital automation solutions in 2023.

2. The ability to analyse and interpret financial data will be crucial in helping companies navigate through another possibly bleak economic outlook

While businesses may not always have foresight over external disruptions, they can optimise some areas of their operations to minimise its impact. This starts with having visibility over financial data, processes and working capital. The same BlackLine saw that 55% of C-suite and F&A professionals in Singapore agreed that the ability to view companies’ financial data in real-time will be a “must-have” for business survival over the next 12 months. A vast majority also mentioned wanting to be more confident in the real-time visibility their companies have over their cash flow. Having accurate, real-time data to inform decision-making allows organizations to respond to unpredictable market conditions with agility and resilience.

That said, constant training on how to analyse and interpret financial data is pertinent and should be implemented if not already done. Data analytics is critical in business operations, and financial data is no exception. Moreover, stakeholders want accountability and confidence in the companies they have a stake in. It’s through knowing how to draw insights from financial data that organisations would have a better understanding of business' health and outlook. From there, they’d be better positioned to advise their stakeholders on what’s to come.

It seems that more organisations are leveraging data analytics to strengthen their F&A competency and business recovery as well. BlackLine’s survey found that close to 48% of C-suites and F&A professionals in Singapore are looking to invest in data analytics capabilities to make more informed business decisions with data within the next 6 months to a year. The same study also saw that slightly more than half (52%) would like to increase their headcount within the same time period to focus more on valuable activities such as data analysis and forecasting.

3. CFOs are taking charge too; not just CEOs

If CEOs are typically seen as those who bring the company’s vision to life, map out its growth, drive profitability and for publicly listed firms, increase share prices, CFOs are the bridge to make this vision work considering the ebbs and flows in the market and the organisation’s capabilities. They are responsible for financial planning and stability, all of which contribute to business health and employee well-being.

While many respondents saw that both CEOs and CFOs have equal responsibility to help navigate a business through winds of change, CFOs have a greater tendency to believe this burden is theirs alone to bear. BlackLine’s survey saw that 68% of CFOs in Singapore said they were responsible for ensuring their company’s well-being during an economic downturn, compared to 30% who said that this was the responsibility of their CEO. CFOs in Singapore also saw that it was their responsibility to help steer the business successfully through a geo-political conflict (54%), the war for talent (54%) and inflation (65%) compared to CEOs.

An unpredictable and tough economic climate could put greater pressure on CFOs to co-lead the business. But their knowledge of all things finance and marketplace movements will be critical in helping businesses go through what might possibly be another challenging economic year.

4. With ESG at the top of business and societal agendas, accountability will be critical in the form of sustainability reporting

Consumers and businesses alike want to engage with organisations that put the environment at the core of their business operations. For businesses, there is a case to be made for F&A teams to take the driver's seat in ensuring accountability, in the form of sustainability reporting.

With their background in risk assessment and mitigation, data analytics and reporting, F&A teams possess unique skill sets that can be translated into ESG strategy, measurement and reporting. Moreover, they have access to data in areas which can be affected by ESG practices, such as sales, supply chain and pricing, which helps with sustainability reporting.

However, many F&A teams are still in the process of ironing out the kinks involved, especially as regulations keep evolving. The reality on the ground? Multiple sustainability reporting frameworks and guidelines across jurisdictions – many with their own method for collecting, verifying and reporting data – can create significant disclosure challenges and result in poor ESG data comparability. According to BlackLine’s study, 46% of CFOs in Singapore called out that the biggest pain point for their finance function currently is complying with new and evolving ESG regulations.

It is thus imperative that organisations will need to begin streamlining and automating existing processes, to help F&A teams more effectively report and ensure accountability in ESG management practices.

5. M&A dealmakers in 2023 will focus on the impact of entity management, antitrust regulations and ESG factors

In the first nine months of 2022, Singapore-targeted merger and acquisition activity fell precipitously, with deal value falling about 57% on a year-over-year basis, according to a Refinitiv report. Domestic M&A value, at $16.9b (US$11.8b) fell close to 39% in the first nine months from the same period last year, while inbound M&A value, at $28b (US$20.1b) was down 63.5% in value correspondingly. Given the current macroeconomic climate, it is expected for dealmakers to brace for a challenging business environment ahead.

In this concerning environment, F&A professionals assisting their colleagues in plotting and executing M&A transactions in 2023 will focus on a target company’s ESG factors, regulatory considerations and global entity management practices.

As global regulations rapidly evolve to ensure tax jurisdictions get their fair share of revenue from intercompany transactions, the onus is on F&A to ensure more strategic entity management. More than one-third (36%) of Singapore C-suite and F&A professionals in BlackLine’s study said that in this era of challenging regulatory scrutiny, they lack sufficient automated controls to address growing data volumes. This creates significant compliance risks that emerge during the M&A due diligence and suggest substandard governance, according to a Deloitte global study in 2022.

The expectation is that more companies will invest in intercompany financial management automation solutions next year. This enables more assured entity data management, regulatory compliance and M&A due diligence.

Mike Polaha is the senior vice president for Finance Solutions and Technology at BlackLine

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