How finance professionals can impact the future

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The future is volatile, unpredictable, and subject to constant change. We can put many labels on it, but regardless, finance professionals must forecast it as best as possible. There’s a step beyond forecasting. Instead of only predicting the future, we should impact it. Why? Because most of a company’s shareholder value is tied to future expectations of the company. This is what we would consider in the bucket of strategic value creation. Using what we learned from McKinsey, we know there are external drivers and active choices we can make to impact strategic or future value creation.?

Let me use a simple example from our own business. Before COVID-19, we delivered learning programs to finance professionals as a hybrid solution between face-to-face and virtual modules. Suddenly, we’re forced into an all-virtual mode and need to pivot. This is the operational reality, and we have started to deliver virtual learning programs. However, there was a broader trend toward online learning, so we built a product portfolio of live cohort-based programs, individual coaching offerings, and e-learning targeted at the B2B market. Not only did it expand our product portfolio, but it also generated intangible assets, improving the shareholder value of our company.?

Future expectations are the final of four value drivers impacting shareholder value creation. If you look at the stock market, this makes up most of the share price of any listed company. Improve the future expectations, and the valuation will increase. The valuation will decrease if they fail to deliver on or worsen the expectations. It’s as simple as that. Future expectations are the only value driver that is impossible to cover exhaustively with underlying drivers, but we have highlighted some of the main ones below.

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• Risk: This is a broad topic that we can split into operational risk, i.e., the risk of doing business; liquidity risk, i.e., the risk of not being able to pay for your obligations; and financial risk, i.e., your capital structure and ability to get funding.
• Strategy: These are the active choices you make as a company related explicitly to M&A, resource reallocation, capital expenditure, productivity improvements, and differentiation improvements.
• External: These are drivers you cannot directly impact, but you can go with the flow, for instance, to follow industry trends or align your business activity to high-growth countries or markets.

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Optimizing this is a vast area; however, we will give it a shot and show you tangible ways that finance professionals can impact future expectations.

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Making the future favorable

?We will review each driver from a business activity perspective and try to translate it into relevant income and balance sheet statement metrics.

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• Risk: Most companies have defined risk management policies and make an active choice about their risk profile. The WACC (Weighted Average Cost of Capital) typically reflects this risk profile. This means that the more risk a company takes, the higher the cost of sourcing capital to fund the business. Speaking of liquidity risk as one example, McKinsey states that companies should have 20% of their resources available as liquid resources. This significantly reduces the liquidity risk and makes the company more agile in decision-making. This is a tangible area that finance professionals can impact by driving efficiencies in all the other value drivers.

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• Strategy: To succeed with strategic value creation, companies must perform exceptionally well in at least two of the five mentioned drivers. However, doing all five well is impossible, so it’s about making the right choices. Finance professionals should quantify and qualify the options and facilitate the conversation about strategy to make the best possible choices. We should also conduct follow-ups to test for strategy effectiveness.

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• External: This is the most challenging driver to impact and predict. However, the simplest way to consider this is by conducting unbiased long-term forecasting and comparing it with your strategy. If you’re unhappy with the expected outcome, you should act today. Too often, companies lack this unbiased view and act on external changes too late. Or they react instead of acting, and that’s dangerous. We’re not saying finance professionals should accurately predict future industry trends, but we should predict, given what we know today if we will be satisfied with the future outcomes. This will drive the right conversations at the management level.

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I remember that, early on in my career, I did some competitor analysis to assist the FP&A team. I was surprised that we didn’t have this already and that the simple insights I could extract from the publicly available information were helpful to management. Much more could be done in this area, but too often, companies lack valuable insights about what their competitors are doing. They may be on the right path, but at least you’ll expand your pool of insights about what companies are doing to impact the future favorably.

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What can finance professionals do?

You may struggle to see how finance professionals can impact these drivers like the ones we covered previously. This is also where Finance does the least work today but generates the most value. Let’s consider some analyses we can make.

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• Risk mitigation plans: Most risk management efforts in companies are technical, meaning we document risks but rarely act consciously on them. You should ensure risk mitigation plans for your strategy and tactical plans. The faster you can activate these, the better, and it’s also your responsibility to highlight when they should be activated.
• Country risk premium: This can be positive or negative, depending on your company’s risk profile. You may do business in high-risk areas with operational and liquidity risks since you may not be able to get your funds out of the country. You should highlight the risk of doing business in the markets in which you’re present and create a setup that will limit these risks upfront.
• Industry trends: You cannot impact these but build a setup to detect them immediately. One way to do this is through social media sentiment analysis or following policymakers closely. Build a monitoring system where the most relevant industry trends are monitored in real-time to ensure you can react as fast as possible.
• Competitor analysis: Unless you’re a monopoly, you must know what your competitors are doing. Even if you’re the best in your industry, you can be sure that your competitors are trying to dethrone you. Also, the active choices you can make as a company are relative, meaning that if you don’t bet big, chances are you’re not moving anywhere compared to the competition.

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This is by no means an extensive list. I asked ChatGPT to give me a list of analyses to prepare, and it quickly gave me ten more:

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• Market Trends Analysis
• Shareholder Expectation Analysis
• Earnings Forecast and Valuation Multiples
• Sentiment Analysis
• Analyst and Investor Expectations
• Scenario Planning and Sensitivity Analysis
• Environmental, Social, and Governance (ESG) Performance
• Shareholder Return Analysis
• Innovation and R&D Analysis
• ·?????? Customer Satisfaction and Retention Analysis

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We’re confident you’re not spending enough time on these analyses. Do yourself a favor and find four hours weekly to conduct some of these analyses for the next two months. We can almost guarantee that you will uncover insights no one knew or had considered.

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Start impacting the future today!?

You would expect many people in the company to work on improving its future outlook. You might wonder how finance professionals can make a difference. Hopefully, you understand from the analyses we have highlighted here that there’s ample opportunity for finance professionals to forecast and improve the future.?

Again, none of these analyses are difficult for finance professionals to conduct, so you must prioritize time to perform them. Then, present your findings to your manager or business stakeholders and start seeing their actions change. How are you using the output from forecasting in your company? Have you been involved in any initiatives aimed at improving the future? What analyses would you recommend to understand your company's future expectations better?

This was the fifth and final article in our new series about how finance professionals drive value creation. You can read the previous article(s) below. Remember to subscribe to be notified when we publish future articles.

The finance professional as a value driver

How finance professionals should drive growth

Who's better to drive down costs than finance professionals?

Is your balance sheet creating value?

Catch our latest series, "Finance 2035 - what Finance will look like a decade from now" below.

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Anders Liu-Lindberg is the co-founder and a partner at Business Partnering Institute and the owner of the largest group dedicated to Finance Business Partnering on LinkedIn, which has more than 12,000 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk . I am the co-author of the book “Create Value as a Finance Business Partner ,” a long-time Finance Blogger, a LinkedIn Learning instructor , and a Top Voice on LinkedIn with 375,000+ followers.