Finance Teams Sharpen the Pencil as More Black Swans Appear

Ongoing macro challenges and a softening economic landscape have brought operational priorities into stark focus.

“I think thematically, we’re seeing an economy in transition,” said Brian Caldarelli, EVP, chief financial officer at PSCU, during a recent interview for “PYMNTS CFO Series: What’s Different?”

“Coming out of the 2008 financial crisis, the Fed turned on the printing press to pull forward growth and incent risk-taking — in other words, they put out the punch bowl, and that punch bowl has been out for 15 years now,” he added.

Caldarelli noted that “you can’t stimulate the economy forever,” underscoring that right now, the macro environment is seeing the inflationary effect of those prior excesses.

Still, he said, “The punch bowl is fun, the market wants the punch bowl back.”

But after a decade-plus of easy money, finance leaders may have lost focus on the fundamentals of balance sheet management. Now, many are taking the medicine.

“When you have those types of excesses in the market that we’ve seen, the market will find it and call it out. We saw that with FTX, we saw that with Silicon Valley Bank, with Signature Bank,” Caldarelli said.

He added that we’re in more of a risk-off environment now, saying that it is time for CFOs to double down on protecting their balance sheets by prioritizing healthy, profitable growth plans.

Read more: 12 CFOs on How SVB’s Collapse Transformed the Finance Department

A Flight to Trust

Times of turmoil are also times of change and innovation, as organizations shed old growth strategies for new focuses.

“[The environment today offers] a great opportunity for regional banks, financial institutions that have a really strong influence within their local communities, like credit unions, who are in a lot of ways the pillars of their local communities,” Caldarelli said.

The reason is that those organizations tend to know best the inner workings of the companies they do business with and the individuals that lead them.

“Trust is the real opportunity that is going to come out of today’s situation — it’s so hard to build up trust and reputation, it takes years. And as we’ve seen, it can all be ripped away in seconds,” he noted.

Returning to that notion of trust, Caldarelli highlighted that local and regional institutions now have an attractive opportunity to keep their business and banking relationships “even closer” than they would have been previously.

“If you think you are communicating enough — you probably are not,” he said.

Cash Becomes Important Again

While Caldarelli emphasized that no organization will ever be completely immune to a financial slowdown — there are still a lot of critical steps businesses can take to ensure that “if there’s a knock over here, you can have a benefit over there.”

“CFOs need to be creative on their ‘what ifs.’ We are seeing a lot of once-in-a-hundred-year events,” he said. “Now is a great time to reach out to your client base, your banking partners and re-emphasize your story and see which ways those relationships can be strengthened.”

The way the current macro climate is moving has put cash in the driver’s seat.

“Cash flows matter. Having enough dry powder to take advantage of the opportunities that might come your way still matters,” he said, noting that CFOs should now focus closer to the bottom of the income statement to assess an organization’s true value.

PYMNTS has previously covered how March’s mini banking crisis was a wakeup call for many companies, spurring many CFOs to go back to basics and pivot from a focus on pure growth toward one that relies upon concrete fundamentals of controllership and making sure organizations have the proper mechanisms to ensure visibility over their working capital and long-term profitability.

That’s why Caldarelli underscored that “now is a great time to sharpen the pencil” for CFOs, “going through your modeling and looking at what [various stressors and market events] could do to your portfolio. … Is your business ready? Now is the time to shore all that up and take a second look at your vendors and other partners that provide the oxygen for your organization.”