5 risks CFOs must weather in 2024

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2024 is here, and with it comes more challenges for you as a CFO. Your role is changing quickly, as you've probably experienced, with businesses relying on CFOs for more strategic input.


Staying on top of macroeconomic trends that could affect your business is one of the keys to fulfilling these expectations.


Here are five risks and trends small to mid-sized businesses (SMB) CFOs must mitigate to thrive in 2024.



Risk #1: Bank regulation squeezes might tighten lending


Interest rate hikes and inflation might be at the top of your mind when thinking of macroeconomic trends. However, tightening banking regulations will likely affect your business much more than whatever the United States Federal Bank does with interest rates.


Standard & Poor's (S&P) reports that regulators worldwide are examining bank capital requirements in the face of rising interest rates. The ratings agency reports that EU regulators will challenge banks on loan loss provisioning practices following poor practices in late 2023.


The effects of this change are simple. You'll likely have to satisfy more stringent criteria to qualify for trade finance and can expect tough negotiations when renewing credit lines.


S&P also warns that low FX reserves in specific foreign economies (like Lebanon, Egypt, and sub-Saharan African economies) will increase business costs and cross-border payment risks.

Work to hedge your currency exposure and supplier risks if your business operates in those regions.


Review your reliance on debt and track debt-related financial KPIs diligently.



Risk #2: Geopolitical volatility will affect the path ahead


The political picture worldwide is volatile right now. The Russia-Ukraine conflict is set to continue, as is the Israel-Hamas war. Throw a potentially divisive American election and the emergence of Taiwan as a US-China flashpoint into the mix, and this picture isn't settling soon.


As a CFO, embracing volatility and planning ahead is crucial. One solution is to review your currency risks and develop a hedging strategy. FX rates might jump unexpectedly, given how the world's economies are intermingled.


Work with an experienced FX provider to mitigate your risks and hedge your exposure. In addition, stress test your balance sheet for cash flow disruptions. For instance, what will your cash position look like if a supplier goes offline?


Collaborate with your procurement teams to calculate supplier diversification costs. While diversifying suppliers might reduce gross margins in the short term, it offers your business a margin of safety during volatile times.


Also, explore how tech stacks can help you squeeze more efficiency out of your finance department. For instance, can you automate monthly closes to receive cash flow pictures quickly? Or could you use ChatGPT to speed up financial processes?


Automation gives your department more time to conduct value-added tasks, increasing the insight quality you offer your CEO.



Risk #3: Supply chains will remain vulnerable


No matter how advanced technology gets, companies still rely on supply chains to physically move goods worldwide. As an international business, supply chain vulnerability is frustrating since many factors are outside your control.


For instance, rising inflation will increase supply chain costs, as will oil price volatility. One way of hedging this risk is to fix forward pricing contracts with your suppliers. These contracts ensure fixed prices for limited times (like one quarter,) helping you smooth your budget.


Given rising tensions between China and the US (and the Western Bloc, by extension,) review your supply chain's dependence on Chinese sourcing. You may find yourself exposed to risks from unexpected quarters.


For example, the US prohibits the sale of goods manufactured in Xinjiang province thanks to the Chinese government setting up forced labor camps. Importing such goods into the EU will also expose you to ESG laws prohibiting the sale of goods involving human exploitation in the supply chain.


While you won't work with supply chain data daily, explore how much data your company receives from supply chain partners. Check whether that data can help you mitigate risks.

Again, this might call for additional investment, but you get a margin of safety against volatility.


Use analytics to explore the impact of logistics pricing on your cash conversion cycle. As a modern CFO, you must position yourself as a business partner, not a number cruncher. The supply chain is a great place to put this into practice.



Risk #4: Cybersecurity is a financial risk


The US Securities and Exchange Commission (SEC) sent shockwaves through the CFO community when it named Solarwinds' Chief Information Office and CFO as defendants in a lawsuit.


Solarwinds was the victim of a cybersecurity attack---an event usually treated as a security incident. While the SEC eventually dropped the CFO's name from its charge sheet, the regulator's message was clear.


The SEC now considers cybersecurity incidents material information, and failure to disclose them will lead to repercussions for CFOs. Market observers expect EU governments to follow suit.


While SMB CFOs won't feel this law's impact directly, you will likely experience a trickle-down effect from your larger customers. As cybersecurity controls become more financially critical, CFOs of large companies will review third party cybersecurity controls.


That's where you enter the picture. Work with your Head of Technology to review cybersecurity controls and standards.


Work with your large customers to understand their needs and risks.

Fail to do so, and you might find those customers choosing suppliers who can fulfill security standards.


Set a budget for cybersecurity enhancements and collaborate with your Head of Technology or consultants to understand your exposure.


As an added measure, review disaster management plans for financial risk.


For instance, does your company have a business continuity plan for a security breach? Business continuity demands offsite backups that help you carry on despite an attacker's threats.


These backups mitigate financial losses and negative brand perception. Speaking of brand perception, keep an eye on attackers spoofing your website. These spoofs clone your website, trick customers into buying fake goods, and cause victims to blame your company.


Work with your Head of Marketing to understand how they're mitigating this risk. Telling customers what kinds of communication they can expect from your company is one solution.


Despite cybersecurity lying adjacent to your core responsibilities, you're responsible for mitigating risks as a strategic partner.


Embrace this responsibility, and you'll build financial resilience in your business.



Risk #5: Workforce management will keep you busy


Business consulting company Protiviti surveyed executives and company Directors for their views on the top business risks in 2024. Unsurprisingly, economic conditions claimed the top spot.


However, the second spot was taken by challenges related to attracting, developing, and retaining top talent, managing shifts in labor expectations, and addressing succession challenges. This ranking placed it ahead of concerns such as cybersecurity, supply chain risks, and digital transformation. Workforce management is critical to maintaining competitiveness, and CFOs can play a significant role here.


Similar to cybersecurity, you might not see workforce management as directly falling within your domain. However, you have the power to draw top-tier talent to your company by tailoring compensation packages to meet their demands.


Listening to your employees and prioritizing their experience is paramount. Collaborate with your talent teams to identify their needs and explore ways to create a positive workplace environment. For instance, can you accommodate more work-from-home arrangements?


How will this affect your payroll costs and filings?


Leveraging technology can assist you in modeling these adjustments, finding a harmonious balance between employee demands and your company's needs. In addition, explore how you can enhance your employee's skills.


Establishing clear career development and learning paths will prove beneficial in the long run, reducing hiring costs. Promoting from within will also minimize onboarding and ramp-up times, ensuring consistency in processes and fostering a cohesive company culture.


Start by implementing these practices in finance and collaborate with other department heads to extend these initiatives throughout your company.



CFOs have a challenging time ahead

FX, supply chain, bank lending, talent, and geopolitical risks will keep you busy in 2024.

Success lies in honing the right skills, optimizing departmental structures for efficiency, harnessing technology, and placing a high priority on cross-department collaboration to navigate the complexities of 2024 and beyond.


Need help getting a hold of your currency exposure? Get in touch with us!