How to navigate choppy financial waters and plan for 2024

A version of this article first appeared on the Payhawk site. Read it in full here .

Businesses are facing unprecedented challenges when it comes to planning for the future. With interest rates and inflation on the rise , raising funds and controlling cash flow is becoming more and more challenging. As CFOs, it’s vital we get our 2024 strategies and tactics right.?

In the last couple of years, we've experienced a market characterised by volatility and unpredictability and had to navigate through critical situations, such as, the collapse of Silicon Valley Bank and ongoing concerns about interest rates and inflation , which will persist through 2024 and likely beyond

I recently shared the webinar stage with Jorge Lluch, Co-Founder & CEO at Abacum , for ‘The CFO's guide to driving efficient growth this planning season .’

We had a great conversation that covered broad planning topics, fundraising tips, and specific strategies, including roll-forward and capacity planning. And we both agreed that the state of market instability is here to stay, at least for a while.?

However, despite the instability, there are ways to financially prepare for a strong 2024 (and potentially even opportunities to leverage ongoing challenges, providing you have flexibility). This article covers:

• Finance techstack?
• Capacity planning around headcount?
• Roll-forward
• Collaboration

Prefer to watch the recording? Register here for the webinar on demand .?

Fundraising in times of crisis: Fundamentals for CFOs

Fundraising in the current market presents a unique set of challenges for companies. And as the financial landscape evolves, we’re faced with navigating high interest rates on venture debt and other debt instruments.

High interest rates, lack of investor confidence, and other macroeconomic factors have increased over the past two years. And the uncertain economic climate and market volatility have made investors more cautious and selective.

So, what can you do as a CFO or finance leader to achieve the above, even in uncertain times?

Actionable tips for fundraising in uncertain times:

1. Leverage your company's unique value proposition and highlight how your solutions address current market needs, countering the negative trends.
2. Showcase your resilience and adaptability track record to instil confidence in potential investors.
3. Take a step back, assess the organization's financial activities, and focus on proposing suggestions for improvement across every department in your organization.

As CFOs we have a big responsibility and must charge ourselves to offer a realistic assessment of the current state of affairs, what lies on the horizon, and how best to chart a course for the future.

Both Jorge and I agree that the relevance of the headcount and how to track

How does company headcount factor into the modern financial landscape?

Both Jorge and I agree that the relevance of the headcount and how to track hiring plans in businesses, especially in the context of SaaS companies, is one of the biggest deals for growing business. Typically, in SaaS and similar industries, headcount represents a significant portion of operating expenses, sometimes as much as seventy percent.

At Payhawk, we pay meticulous attention to this aspect. Our approach is closely ties to the company's goals, revenue trends, and overall growth trajectory.

Using capacity planning models to budget headcount effectively

Looking at our approach in Payhawk, for example, we've dedicated substantial time to developing a capacity planning model for each business function. Given that headcount usually accounts for a substantial portion of our operating expenses, it serves as a foundational element and a critical factor influencing our scalability.

To illustrate this point, let’s consider our support and compliance functions and how we’ve established effective hiring workflows through capacity planning:

1. We've built capacity plans and models for our support and compliance processes.
2. These models established the maximum capacity that a team can handle (e.g., X customers per month), factoring in current and future customer expectations.
3. Based on these models, we planned team capacities in various territories where we operate, making closing the year and budgeting for the next one easy.
4. This approach extended to sales, marketing, and R&D, leading to more predictable business outcomes.

These four steps helped us make internal financial planning workflows more fluid and efficient.

And the key to developing these capacity planning models? It lies in gaining expertise in how your business operates and remaining agile in your analysis as assumptions and conditions evolve swiftly.

Regular analysis, adjustment, and collaboration within departments will help you comprehend and re-evaluate assumptions of the capacity planning model, making it more accurate.

How do you adjust your capacity planning model as you scale?

For Payhawk and many other companies, the shift from the era of easy, low-cost financing to one of efficient growth has been a pivotal transformation.

Efficiency is now at the forefront of our approach to scaling the company . Preserving cash and ensuring a healthy runway to meet our objectives is a huge priority. Efficiency is one of our guiding principles, and in action, it involves.?

Carefully analysing all of our departments, looking at underlying expenses, ensuring that every new headcount is worth the investment and contributing positively to our overall digital transformation ROI .

Having a hiring plan or a budget doesn't mean automatic spending or hiring. Business tracking and evaluation are crucial. Over-hiring without sufficient demand can place unnecessary burdens on the company regarding onboarding, training, and ensuring meaningful work for new hires.

Therefore, we closely monitor our plan throughout the year, adjusting based on market feedback and our performance. Any deviations from the budget require a rigorous justification process. Those proposing additional headcount must explain the need, how it will address issues, and why it's the most suitable solution.

Having a team of talented people is vital to making any business a success. But it's important to remember that adding more and more people isn't always the answer. And you should also lean on tools and initiatives, like spend management automation or alternative hiring approaches to help drive efficiency.??

Using monthly roll-forward forecasting to inject agility into financial planning

Since the early stages of Payhawk, we've established a rigorous system with strict deadlines for month-end closing , reporting actuals, and updating our financial models. This approach revolves around monthly roll-forward forecasting, incorporating the actual financial data into our models.

What is roll-forward forecasting?

Roll-forward forecasting is a powerful financial management technique that allows businesses to project their financial performance into the future by building on existing data and trends. It's like taking a snapshot of your current financial situation and using it as a starting point to predict what lies ahead.

Unlike static forecasting, where you start from scratch each time, roll-forward forecasting considers the latest actuals and updates the forecast accordingly. This dynamic approach ensures that your projections are always up-to-date and aligned, especially in today's ever-changing business landscape.

Our business plan and model are intentionally designed to facilitate easy updates, accommodating critical assumptions and observed trends. This flexibility enables us to extrapolate the business's performance over a twelve-, twenty-four-, or thirty-six-month horizon, which proves invaluable when preparing for fundraising activities .

Whether it's sharing a three-year plan with investors or potential partners or going back in time to identify potential trends, having access to accessible and highly accurate data gathered through this model equipped us with the insights needed to anticipate how changes will affect key performance indicators such as cash burn rate and top-line growth.

How do you apply your ‘CFO strategies’ to business areas outside of finance?

Collaboration is key. As CFOs and finance leaders, you must create collaborative processes that help you learn and adapt fast, understanding that when you set your company’s budget or forecast, you’re essentially setting performance goals for the company.?

Ultimately, collaboration boils down to conversations that revolve around lessons learned, expected outcomes versus actual results, and any subsequent actions. Taking this approach will make your financial planning models more effective, helping you to justify (or deny) some assumptions of the model in time.

Here are some of the questions you could potentially ask your department owners next time you meet them:

• What did you learn if you didn’t hit your goals?
• What are the things you could change in retrospect?
• What do you expect will happen if you make this change going forward
• Are you going to be setting new objectives?

Moving beyond just planning or setting goals, it's important to make improving company performance a team effort. By encouraging a mindset of learning and adapting, companies can move away from rigid yearly budgets to more flexible processes.

But how can you make this shift a reality? To put this shift into motion, you need people in your organization to see the finance department as something other than as fault finders or receipt-chasers. Instead, you need them to see you as catalyst for positive change and improvements in financial processes.

To delve deeper into these topics and gain expert insights, watch the full webinar, The CFO's Guide to driving efficient growth this planning season .