Not quite a full quarter into the new year and we’re already seeing a tumultuous 2020 that is causing businesses around the world to rethink strategy and direction. Amid current volatile changes, we are seeing a number of trends emerge that can significantly impact both your finance team and organization during the year ahead. Without first understanding these trends, it will be challenging to respond and navigate amongst the sea of uncertainty in today’s business and economic climate. How your finance team responds could impact your performance during a year that has already seen massive market changes.
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So without further ado, here are the three trends defining Finance for 2020:
Uncertainty is the New Normal
2020 has started off as a year of wild extremes. The Dow Jones Industrial Average hit an all-time high of 29,535.40 on February 13th. Only a month later in March, spurred by Coronavrius fears and a global oil price-wars, the Dow plunged 20% from recent highs and entered bear market territory. And there’s more uncertainty ahead. We see other evidence of mixed economic messages. Unemployment is at historic lows, yet the US federal deficit continues to balloon. Talks of an upcoming recession are accelerating. Expect the US Presidential campaign and politics to add further turmoil to an already uncertain time.
Finance executives have taken note, with 56% of companies taking steps to prepare for a recession this year, according to the latest Duke University/CFO Global Business Outlook survey of 800 financial executives. And that was before Coronavirus roiled world markets. Nearly 60% of respondents are strengthening their balance sheets and reducing costs. Nearly half are increasing liquidity and around a third are scaling back or delaying investments. This indicates a remarkable defensive posture from many companies during the longest market bull run in US history. It underlies the great uncertainty CFOs face, even as they have access to more data than ever.
New Regulations on the Horizon
Finance chiefs must keep a pulse on the regulatory front too. And while there are requirements coming that will impact specific industries such as banking and insurance, the impact of the new Lease Accounting guidelines under IFRS 16 and ASC 842 is much broader. For example, early estimates of the new standard, which essentially calls for companies to report lease liabilities directly on the balance sheet, put the total impact at over a half a trillion dollars for public companies.
While the new guidelines affected public companies beginning in 2019; private companies got a reprieve and must now implement the new standard for fiscal years beginning Dec. 15, 2020 (a 12-month delay from the initial deadline).
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For those gearing up, now’s a good time to learn from public companies who’ve already adopted the new standards. Here are a few lessons learned:
- Gathering documents is a big chore – start early
- Lease arrangements may be hidden in other contracts – be diligent
- Companies will need to implement or modify internal controls
- Debt covenants could be affected – work closely with lenders
- Time and costs of compliance could be substantial
- Carefully evaluate the available lease accounting software alternatives
Digital Transformation of Finance
On a positive note, technology is getting smarter and providing better solutions for the finance team to manage uncertainty and regulations. Promising new technologies such as Robotic Process Automation (RPA), machine learning (ML) and predictive analytics are finally moving beyond hype and into the mainstream.
In fact, Gartner expects almost 75% of controllers to adopt RPA in 2020, up from just 19% in 2019. For back-office and transaction focused teams, RPA’s ability to automate and standardize processes is compelling and will free up resources to focus on more value-added activities, such as planning, forecasting and analysis. .
The use of predictive analytics and ML is growing as well, with almost 50% of organizations either currently using or evaluating data science software, according to the Dresner Advisory 2019 Wisdom of Crowds® survey. Finance and operational leaders are looking to supplement their planning processes with statistically significant, unbiased forecasts to compare against business forecasts that may be biased by the political and economic uncertainties we are facing.
Advanced analytics are helping to drive more dialogue with business leaders to not only share metrics, but to also dig deeper and understand what the numbers actually mean. Finance leaders are becoming more strategic within the business as they leverage data for more insight. Expect to see more finance teams embracing new technologies that streamline operations, provide richer planning and analysis and ultimately help to digitally transform finance.
To keep ahead of these macro-trends, companies should consider several important initiatives to help them manage change:
- Elevate your team’s focus on value creation to become more strategic, expanding partnerships with sales, marketing and operations to optimize the reporting and performance of critical KPIs and business drivers
- Streamline the financial close process by minimizing manual tasks like data loading, account reconciliations and reporting, and shift more time to value-added and forward-looking analysis of the business.
- Improve management decision-making capabilities by integrating operational data with financial data, and embrace governed analytics to empower managers with trusted, timely and accurate data.
- Identify pilot projects to better understand opportunities to leverage RPA, ML and predictive analytics, as well as understand the impact of these pilots on daily finance processes and members of the finance team.
The only certainty about the remainder of 2020 is uncertainty itself. Preparing now and facing unexpected changes head-on with technologies and processes that deliver the agility you require will help your company adapt, survive and even thrive. It’s time for the finance team to become more strategic and help your company make better, well-informed decisions that lead to success, even in an uncertain economy.
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