top of page
Search

The benefits of investing internally during an economic downturn

It’s no secret that the economy is in trouble. The U.S. stock market suffered its worst first half of a year since 1970, and at the July 1 halfway mark of 2022, the S&P 500 was down 20.6% year to date.


Surging global inflation forced central banks to institute aggressive rate hikes after a decade of easy monetary policy, but markets are still struggling to choose a direction. All of this is causing companies – even profitable ones – to be cautious of spending and hiring.


IPO statistics show this trend. 2021 was a record setting year, and 1073 companies went public, raising a whopping $317 billion. When comparing this to the first half of 2022, (92 companies raising under $9 billion), 2022 is on track for a fraction of previous years, even with an unlikely second half turnaround.


All of this has caused many companies to change their growth plans. While it may make sense to press pause on large-scale financial moves such as an IPO or acquisition, that doesn’t mean growth has to stop entirely.


Instead of focusing on traditional high scale growth such as hiring quickly and raising additional funding, now is a great time for companies to focus on other aspects of growth, namely investing internally.



Investing internally


There are multiple ways to invest in your business that don’t require scaling significantly or increasing hirings. Most importantly, CFOs have the power to weather a recession without falling back on large cutbacks or mass layoffs. Here are a few examples of categories they can invest in internally:

  • Thinking outside the box with R&D

  • Rethinking automation

  • Researching M&A opportunities

  • Improving internal processes


Doing this will not only help the organization survive the recession, but it will also help companies emerge from the period stronger and in a better position for growth over competitors. And no matter what type of economic period is occurring, taking a step back and investing internally will allow for companies to rethink their processes and make more thoughtful and measured decisions.


Outside the box mentality shift


Although high interest rates, low consumer sentiments, and economic slowdowns come with many challenges, it is also a good time to refocus efforts. Many young companies with high levels of growth (especially during the 2021 “easy money” days) tend to focus most of their efforts on the top line. A huge percentage of their investments and resources go into building marketing, branding, and sales, and lead generation, while the other processes are left behind.


It is usually only later, when a company is checking the option of an IPO, or being closely scrutinized by stakeholders and the public, that they start looking at the operational aspects of their back office. And that’s when they realize they are much farther behind than they thought.


For companies to have a successful IPO, they need to have all aspects of the organization on a high level, including the “behind the scenes” processes that may have been ignored until now. All of the financial operations, such as more efficient budgeting and forecasting automation and upgrading payroll and accounting, are just as important as a healthy level of brand recognition and company growth.


Start with simple improvements


In a time when many companies are putting a total freeze on hiring, or even going backwards by conducting mass layoffs, it is important to start with small improvements. An easy place to start is to look for manual processes, as these take up the most time and also are usually quick and relatively cheap fixes.


Some examples of these are FP&A solutions that consolidate manual processes and increase analytical insights. Another example is human capital management (HCM) in which far too many companies are still using emails and spreadsheets to manage their employees instead of one software that manages everything from A-Z.


Lastly, is simply encouraging internal upskilling. Giving employees a say in their career path, whether it be increased responsibilities or more options for company input, will almost always increase motivation and productivity. While this needs to come along with increased salaries and benefits, it costs significantly less time and money than hiring new employees and is a great option for company growth during an economic downturn.


Overcoming challenges


Although many organizations understand the need to upgrade and modernize their financial processes and encourage company growth even when money is tight, it doesn’t mean that there aren’t obstacles involved.


For those trying to modernize and upgrade financial automation, many finance teams find that the biggest challenge is getting management onboard, especially during difficult economic times when spending extra money on new developments sounds quite scary.


But getting a demo to show the value, or using financial statements to see how much money companies are leaving on the table can make management far more excited about dishing out the money for this. This is especially true if finance teams are able to prioritize and focus on key pain points that are costing the company a particular amount of money or time.


Conclusion


Economic downturns are a good time to think outside the box. Whether it’s a change of course for R&D, rethinking internal processes that have been pushed off for too long, or investing in automation, there are plenty of ways to improve a company’s value without investing huge sums of money or taking on additional risks.


4,839 views0 comments

Comments


bottom of page