Today’s Macroclimate Calls for Controlling What’s Controllable

The uniquely contemporary challenges of today’s macroclimate are transforming the finance department.

Among historic levels of inflation, rising interest rates, dwindling access to financing, and ongoing black swan events, the notions of bank risk and treasury management have risen to the forefront of CFOs’ minds.

Still, uncertain times call for control over what is controllable.

“In this environment, you’re very focused on the balance sheet,” Tim O’Leary, CFO of Priority Technology Holdings, told PYMNTS. “[CFOs] have to be a steward of the balance sheet.”

He explained that “financial strength” is not just critical to weathering the tough times impacting the market; effective financial management also empowers firms with the flexibility needed to be nimble and take advantage of any attractive opportunities that arise.

Underscoring the realities of today’s environment was the domino-like collapses of Silicon Valley Bank (SVB) and its peers Signature Bank and First Republic Bank.

O’Leary said the banks that failed this year did so because they did not adhere to “a couple key tenets of effective risk management.”

“It shouldn’t be new, but companies need to think about their own cash management and balance sheet strategies to ensure diversification and the right match of assets and liabilities so liquidity doesn’t dry up and there is no single overexposure,” he said.

Read more: SVB Collapse Has Companies Reviewing Financing, Cash Management Strategies

The Fundamental Importance of Best Practices

The new macroenvironment has brought with it a renewed focus for finance teams on the fundamentals of controllership. Making sure the business has the appropriate financial capacity and security is job one.

Smart CFOs are consistently pivoting from a “growth at all costs” mindset to privileging sustainable strategies that ensure long-term visibility over working capital and set guardrails for healthy profitability.

“We’ve always been pretty focused on, and built for, the long term,” said O’Leary, noting that “short-term gyrations” in the market haven’t impacted his own strategy for how he thinks about capital allocation — although certain approaches have actually been accelerated by short-term environmental realities.

As PYMNTS reported earlier, a rising generation of CFOs are increasingly tailoring their spending to meet the new “new normal” of economic uncertainty and ongoing digital adoption by seeking to modernize business processes and reduce operating costs.

O’Leary explained that digitally native technologies “give [CFOs] the ability to manage everything in one pane of glass.”

That’s because the ability to invest in growth and be able to cultivate technology supports nearly all points of strategic differentiation, no matter the sector a firm is operating within.

Driving Alignment While Accelerating Growth

O’Leary noted that it wasn’t until this past September that he “stepped into the CFO role at Priority,” transitioning into the chief finance position after more than two decades in banking.

It has given him a unique view on the importance of being clear about strategic priorities and business landscape assumptions, as well as socializing them with the rest of management.

“When you get into the CFO role and start to spend more time with the operational requirements, internal financial requirements, and liquidity management responsibilities — you realize there are so many aspects to the CFO position that aren’t apparent from the outside,” he said.

Still, “it’s exciting” he added, explaining that getting into the different parts of the business as a “jack of all trades” is helping him identify and drive new synergies.

O’Leary emphasized that while the macro headwinds haven’t caused him to recalibrate his company’s long-term financial plans, “there’s a macro and a micro viewpoint.”

At the macro level, it’s “key to understand and execute” horizon-level strategies while remaining nimble, he said. “You have to stay focused, and you can’t get distracted by the day-to-day or week-to-week volatility you see in the market, or chase out of left field opportunities.”

At the micro level?

O’Leary explained that managing liquidity comes first and foremost. “Maintaining an efficient operating structure from a cost structure is what lets firms take advantage of the opportunities that may come their way.”

As for what the Priority CFO is looking forward to most, “It’s all the opportunities out there,” he said, and having fun looking into what’s available with the rest of management and then stress-testing those scenarios across different business priorities and with different tactics.