Finance Market Update - Nov 23

Hello, and welcome to November’s instalment of the Absolute Finance and Accounting update. This month, we focus on the current challenges that CFOs face and the pinch that many businesses are continuing to feel from the fallout of the pandemic, supply chain issues, and the effects of Brexit and economic uncertainty.

Typically, the run-up to Christmas can be a busy time in recruitment, with companies looking to secure candidates ready for the new year. This year looks no different; however, we are seeing a big push on the transformation front, and BAU roles are generally recruiting like-for-like replacements instead of growth hires. That said, strong candidates are still receiving multiple offers, and it’s a competitive time of the year, with companies looking to wrap up their processes by the first week of December.

It's no surprise to hear that this year has been very challenging for businesses and employees battling interest rates and soaring inflation. We’ve seen an increase in redundancies and, overall, a drop-off in hiring across the year compared to 2022.

As I said in last month’s edition, plans for expansion, investment, and growth were well and truly shelved in H1, and the focus shifted to more defensive strategies like cost-cutting and cash flow management. In H1, our larger clients favoured interim hires over permanent ones, again showing a cautious approach.

However, H2 has seen sizeable investment in some industries such as construction, green tech and bio-tech. We have had several discussions with clients about extensive hiring plans for 2024, some of which include M&A-focused roles. Could this be early signs of the market picking back up again? I hope so!

CFO focus on debt reduction

There’s a level of concern from CFOs regarding financing, specifically in terms of debt and the effect that interest rates have on the balance sheet. Deloitte has reported that CFOs of the UK’s largest companies rate bank borrowing as an unattractive source of financing, now more so than ever. Hiked interest rates are behind this mood shift, and as a result, we are seeing previously unfavoured options, such as equity finance, being considered by more businesses.

With more pressure on finance functions to reduce debt, particularly with ongoing concerns about the future of inflation, we’re seeing the fallout in terms of reduced investment and expansion. With product and geographical expansion plans being put on hold for many, we’re continuing to see what we reported last month, that there’s a number of highly qualified finance professionals who made a move into a “growth” role in the last year who are now facing the prospect of their role becoming more operational due to cost-cutting.

Businesses need to take a strategic look at their current employees and review individual output for key members of the team against the criteria that they were hired against to ensure their finance team doesn’t lose enthusiasm for their role or the business. Ensuring they understand the situation and opportunities that will become available to them in the future will be key to retaining staff. On the flip side, for those companies with growth projects still in the pipeline, now could be a great time to put your positions out to the market and see who you can attract.

Inflation is still a cause for concern

As we’ve mentioned earlier, CFOs still expect inflation to pose challenges. While they acknowledge that headline inflation is likely to decline over the next two years, they anticipate it to be around 3.1% in 24 months, which is well above the Bank of England’s expectation of 2%. Senior finance candidates that I’ve been speaking to have all agreed that this isn’t a new problem and is something that has been causing budgeting and forecasting headaches for the last year. Many agree that it’s incredibly challenging to forecast costs accurately 12 months in advance when they’re rising quickly. To combat this, many clients I’ve talked to have been opting for shorter forecasting periods – some as short as 3 months ahead.

CFO priorities

As is the trend in our update so far, reducing costs and increasing cash flow are the headline priorities for CFOs for the coming year. Most firms’ operating costs have risen drastically in the last 12 months, and most CFOs expect them to continue to increase. Many of our clients are going through cost-cutting projects with varying degrees of severity.

Some are focused on employee savings - restructuring departments and reviewing headcount. Others are looking at software costs and reviewing licences and subscriptions to ensure everything is being used. Some are stripping things right back, and budgets are being set to essential spending only. One business told me that the CFO is manually approving all spending across the business to keep outgoings to an absolute minimum, and I suspect some people reading this article are in the same boat!

Regarding cash flow management, we’ve made several introductions recently to interim credit controllers who can come in and tackle aged debt. Most credit controllers are worth their weight in gold and will more than pay for themselves.

Expanding by acquisition

On a more positive note, expansion by acquisition has continued to grow slowly this year and is up from 15% to 19% this quarter. Could this be an early sign of market improvement next year?

Several senior finance hires have mentioned that they are looking at acquisitions for next year and have wanted to see candidates with prior M&A experience. We’re being asked for finance professionals who have successfully managed acquisitions and have overseen the due diligence work. There are also calls for candidates who have integrated the business into a larger group and who’ve seamlessly aligned processes and systems across the group.

Thank you for taking the time to read our senior finance market update. As always, if you would like any advice on hiring, candidates, salary benchmarking, a general chat about the market, or to discuss your next role, you can now book a 30-minute call with me here.