During bull markets and boom times, small businesses can afford to take a relatively laid-back approach to financial forecasting, planning, and reporting. Tracking the movement of every dollar can seem less important when cash is plentiful, and investors are lining up to support promising companies.
But the 2023 forecast is not for a bull market. The headwinds that battered the economy for the past year are expected to keep blowing. Startups are being told to plan for the worst as markets continue to buckle under the weight of high inflation, rising interest rates, supply uncertainties, and other pressures. Investors are conserving cash, and businesses are being advised to do the same.
For this reason, finance systems and proper accounting procedures will take center stage in the new year. Managing cash and extending runway will be critically important, and relying on outdated systems—or those that do not offer actionable insights into the company’s financial health—won’t be enough. Many companies will need to do more than simply rethink their finance systems as the downturn continues. Some will need to redesign them completely.
The right blend of human expertise and integrated technology can help businesses hunker down for what could be a prolonged economic winter.
The Right System
Some businesses think of their financial systems as an afterthought and engage in activities like financial reporting simply because it is required by law. But this kind of thinking keeps a company trapped in the past and unable to embrace the future.
Accounting and finance can serve as the cockpit of a business and can be central as a company plans for the future. Accounting can be proactive instead of reactive, but this is only possible with the right blend of human expertise and integrated software.
Companies that aim to redesign their financial systems in order to fare well during the current bear market should consider the following steps:
Add firepower to the accounting team:
Whether or not your company employs a full-time accounting professional, it can be beneficial to bring in outside help. Consider hiring a fractional CFO or external accountant who can teach the team best practices and new technologies for financial tracking. Some fractional CFOs and accountants specialize only in setting up new software and integrating different tools to optimize automation, but others can teach your organization how to do the same. Those professionals are likely to bring the most value.
Shop carefully for the right software:
Companies looking for upgraded accounting software should consider whether they aim to have a one-stop shop–where everything is built in–or a series of niche products that can easily integrate with others. Smaller businesses, and those with relatively simple business models, often find that the one-stop-shop model serves best. Ease of use is another important consideration, as other team members should be able to use the software. The best accounting software is cloud-based and integrates with banks, vendors, and other software. And importantly, the right software will give your company ownership of its data and make it easily portable.
Finance systems used to be all about debit and credit. But the API-first approach that now dominates the software landscape has changed that. Modern fintech tools must help a company analyze data or offer new adjacent features, including payments, integrations, banking, and other functions. As a result, it’s crucial to ensure the finance system either supports this out of the box or can integrate it into the existing business software ecosystem.
Customers (whether B2B or B2C) want to be able to buy whatever they want, wherever they want, and however they want. It’s up to businesses to offer them the flexibility they now expect.
And all of this is taking place against the backdrop of an economic downturn. As a result, companies not only need to scramble to keep up with customer expectations, but they must also meticulously track the flow of every dollar into and out of their business.
It all adds up to strain on a company’s financial operations. And the strain will be enough to break outdated finance systems.
As companies weather the downturn, they should consider finance and accounting as crucial planning tools, not an afterthought. The right integrated technology system, underpinned by human expertise, can become a part of the company’s nerve center, offering clear insights that the leadership team can act upon.
Downturns and bear markets have a way of clearing out deadwood and allowing new things to grow. For many businesses, the deadwood will include legacy accounting systems.
Martin Hegelund is cofounder and chief marketing officer at Ageras. After founding his first Internet project at age 13, Martin became obsessed with building and scaling Internet businesses. He is an award-winning serial entrepreneur with 15 years of experience working with digital media, SaaS and online marketplaces. Martin cofounded several successful technology companies – Ageras being one of them, which to date has raised over $100M USD to fuel its rapid international growth. He gives back to the ecosystem by investing in early-stage startups.
Finance Systems stock image by create jobs 51/Shutterstock