Most U.S. businesses will struggle to survive without consolidated, real-time, and accurate financial data for leaders to make strategic recommendations.
A recent Accenture survey revealed, “76% of CFOs agree that without ‘one version of the truth’ across business units, their organization will struggle to meet its objectives.”
Per NetSuite, the impact is on CFOs, who are so inundated with tasks that they can’t dedicate time to creating a financial vision. They are mired in semi-analog processes like downloading, cleansing, and reconciling multiple data streams, while all around them the pace and volatility of economic circumstances and technological change have accelerated.
Without reliable data, CFOs are asking “what happened?” instead of “what WILL happen?” They can’t leverage the data to make predictive recommendations because they’re overwhelmed by the burden of creating a single source of truth--the very data they depend on to assess and communicate risk, value, and opportunities.
With the urgency to maintain cash flow and a pulse on macroeconomic events, CFOs are forced to apply temporary solutions to systemic problems.
How did we get here?
A McKinsey study found that over the last 10 years, CFOs of small to mid-sized SaaS companies have seen their role expand into business partners and strategic advisors, on top of their core financial responsibilities. And while their duties and influence have increased, current solutions haven’t fully addressed the need to create this single source of truth for sophisticated, multi-product organizations. The answer isn’t substituting its people for new tech, either: In collecting the individual perspectives of experienced CFOs, our conversations revealed that even when amply resourced, CFOs prefer a combination of tech and talent to transition the finance function from gatekeeping to strategic enablement.
I’d like to do more, but I'm handcuffed by data and lack of automation. I can’t quickly publish a renewal baseline, because I have to spend two weeks cleaning up renewable baseline data.
And subscribing to more technology hasn’t eliminated the need for talent, it’s only highlighted a growing demand for data-driven, tech-savvy candidates who can support digital transformation in finance. While large enterprises have the means to continuously monitor their revenue and support agile decision-making, smaller companies are more challenged in creating efficiencies in their businesses. This resource deficit affects a massive population of CFOs working in the small and medium-sized business (SMB) and Mid-Market (MM) segments: the Small Business Administration found that in 2021, small businesses alone comprised 99.7% of firms with paid employees in the U.S. An additional 200,000 make up the MM segment. That’s an overwhelming amount of U.S. CFOs who grapple with insufficient, quality resources to overcome this data unification problem. The most obvious limitation is budgetary constraints that restrict the CFO’s ability to spend on tools to “fix” the data, as well as the talent themselves: the data analysts, FP&A leadership, and accountants that can make sense of their data in ways that enable CFOs to anticipate the future and make their businesses bigger and better.
According to CFOBrew, the CFO role has expanded from number cruncher to one that’s expected to scale and grow the business. They’ve taken on responsibilities that were once reserved for the CEO or COO, such as:
As a result, the number of roles reporting to the CFO office has also grown. Between 2018 and 2021, McKinsey found that roles reporting into the CFO office went up
The growth in CFOs' responsibilities and direct reports underscores the urgent need to create more space for strategic analysis in the role. Harvard Business Review interprets this role expansion as a directive for CFOs to balance the short-term priorities that yield immediate results with a conscious effort to focus on planting the seeds of “non-core initiatives today to create [a more certain] future.”
DEVELOPMENTS IN TECH
Technological advances have contributed to the expansion of the CFO’s organizational purview. For example, progress in machine learning and AI have made it possible for well-resourced companies to subscribe to tools and software that offer operational time savings and insights. But directly infusing AI and machine learning power into internal processes is still out of grasp for smaller and leaner companies. They must be more thoughtful about their limited budgets and instead rely on a vendor’s promise of having such capabilities.
We spend 95% of the time trying to get the data, clean it and get it right and clean. We only have 5% of the time to put together the presentation or figure out the why.
The pace of change is also accelerating; just as organizations integrate a new tech solution, the latest “upgrade” makes current tech investments obsolete. According to the Wall Street Journal, finance teams are subsequently expected to expedite their decision-making and make their planning processes more efficient and responsive. This demand for digital transformation centers the finance office as the hub of data-driven decision-making and positions the CFO as a “shepherd of data" as well.
ESG REPORTING DEMANDS TO INCREASE
Macroeconomic forces have also wedged new concerns onto the CFO’s list of growing responsibilities. For instance, ESG reporting mandated by the SEC requires companies to disclose how their financial practices uphold environmental stewardship in the face of worsening climate change. Meanwhile, the widening global inequality gap has created an urgent need for companies to disclose how they manage relationships with their employees, vendors, and communities in which they operate. Although ESG reporting has existed for the last 20 years, Bloomberg Law indicates that the SEC has suggested that a significant overhaul is on the horizon, with more extensive reporting that will be required than in the past. This will also intensify how shareholders and investors examine funding and legal risks to corporations, pressuring CFOs to remain in compliance with these enhanced regulations.
THE MARKET HAS GROWN UP
The market, meanwhile, has matured in tandem with these macroeconomic factors. The SaaS business has grown up. It’s in a more stable place than it was two decades ago. This means that CFOs are prioritizing the quality of their revenue over the “growth at all costs” seen in a novel or experimental phase of maturity. Companies in this space have matured out of the pre-series B phase whereby the CEO used to lead the meeting. Now, as the Controller’s Council reports, their focus is on Series C+ priorities, which concentrate on activities that tighten operations and increase EBITDA (e.g. reporting, compliance, and getting the close data to FP&A faster). This centers the conversation on how the CFO expects to create a subscription software business buoyed not by an all-out sprint for survival, but by the endurance of a long-term growth strategy.
As the world around the CFO-- and their role--grow more complex, the solutions supporting SMB and MM finance work remain nascent, especially when compared to the tech stack solutions availed to their enterprise counterparts. The humbling gap between what the CFO must do and what they’re limited in doing only exacerbates the negative impact this misalignment has on SMB and MM business in the U.S. Reconciling, cleansing, and consolidating financial data is a painstakingly lengthy and necessary process. It needs to be done frequently because the velocity of change has created the need for continuous planning.
CRM, billing, and usage: three disparate systems that don’t always talk to each other, and when they do, it's not seamless.
A domino effect occurs when an organization experiences a lack of timely, accurate financial data due to delays in its processing. When financial books aren’t closed on time, it delays the inevitable reconciliation that follows. Finance teams must then focus on making tactical corrections, leaving little time to make strategic recommendations. In the absence of these early warning signals, leaders make strategic decisions based on contextless or delayed findings that undermine their profit, revenue, and budget goals. This is the data they depend on to inform
Without predictive counsel from the CFO, leaders are less equipped to avoid pitfalls or take advantage of opportunities. The reporting delay and lackluster outcomes only damage the business’ credibility and creditworthiness in the eyes of its investors and lenders.
SMB and MM CFOs are acutely aware of and trying to tackle their “messy data” problem: 74% of finance functions are already using predictive analytics and 61% have woven AI technology into their data processes, whether internally produced or via third party vendors. Despite the use of smart analytics, CFOs are still at odds with streamlining it all. Their current tools stay siloed, making the CFO the “tactical glue,” which takes them away from the most important part of their job: analysis and strategic recommendations.
CFOs are stuck in irreconcilable circumstances with surmounting responsibilities and scant resources. Growing revenue has always been hard, even for well-established enterprise firms. Macroeconomic forces, an increasingly competitive landscape, and technological developments continue to challenge the status quo of financial planning and have laid bare how the CFO’s role has not only gotten bigger, but also harder. This is particularly sobering for SMB and MM CFOs who manage complex businesses, yet don’t have the resources to invest in a complex data solution. If finance is feeling the burn, it means other departments are also dipping into the same limited budget to implement the tools and software to improve performance. As a result, when left to choose, CFOs in this segment may end up going with a “safe bet”-- a single-process automation, for example--knowing that what they really need is a more versatile, hands-on, and scalable course of action.
There's a lot of pressure to sell versus to be disciplined about what you put into a system, which creates noise in the data.
A piecemeal approach to solving a multi-layered problem results in a remedy that’s limited in depth and breadth; solutions that overpromise and deepen mistrust of the latest “shiny solution.” CFOs have grown skeptical of and sometimes avoid companies pitching themselves as the “silver bullet” to their data problem because they equate data integration with data “cleansing.” CFOs have their pick of software that can combine multiple data streams, but the same can’t be said about the number of companies who can “purify” the data for them. This poverty of data refining solutions also suggests an underestimation of the on-the-ground, qualitative value created by a CFO’s FP&A and RevOps teams. As a result…
According to Mike Kelly, Americas finance consulting leader at EY Finance, simply paying for a tech stack isn’t the complete answer: “Technology doesn’t solve any problem; it just enables it. I can get to the data quicker, or I can identify the problem sooner, [but] it all comes down to the people and upskilling your talent.”
Technology doesn't solve any problem; it just enables it.
This is why CFOs are devoted to Excel, even though it means spending disproportionately more time using spreadsheets to bring the data to its desired state. It may not have all the bells and whistles or fancy user interface of a data software solution, but it provides what most solutions have forgotten is essential to finance executives: full control, transparency, and trust in the data.
What will determine success for CFOs of mid-sized businesses, notes CFO.com, will be their ability to build a team and an intelligent tech stack that will reduce manual labor and make culling insights from the data easier. Finance’s data conundrum can’t be solved by a fully automated solution because machines aren't evolved enough yet to do pure AI and matching with the relatively small datasets that SMB and MM businesses currently have. On the flip side, recruiting and onboarding data-driven finance talent is a lengthy and expensive endeavor; it commonly takes eight months for new hires to reach full productivity. With demand for data analytics talent surpassing supply, compensation packages will need to be highly competitive to attract top candidates. Even then, it can be a wait-and-see approach to determine if they’ll meet expectations.
When technology saves time by automating administrative and “data priming” tasks, people can leverage their time and talent by transforming data into insights and strategic recommendations. Both address critical parts of the data unification issues.
How do CFOs of mid-sized companies with enterprise-level data challenges move from looking in the rearview mirror to looking into a crystal ball?
If we define MM and SMB as managing revenue between $5 million to $500 million annually, not everyone who operates in this space can afford to go “all in” on a big firm solution. Therein lies the rub. It has historically required significant company resources to bring the finance operations to a place where they can reduce time on manual tasks and increase future-forward recommendations. But can both be done for the CFO to be confident that their data’s integrity and scope of utility are being upheld?
Finance executives have been staring down the barrel of what was once a quarterly task of consolidating, cleansing, and reconciling financial data to one that necessitates continuous maintenance. The pandemic was the impetus for accelerating around-the-clock financial planning, and now businesses look to sustain the benefits of having real-time data to support forecasting and risk management goals.
Investing in the right tools is a key part of enabling finance to deliver on-demand reporting for all business units. It’s a responsibility that requires both manpower and computing power to complete accurately and at minimum, on time. There are no shortcuts in this process, which makes it difficult for SMB and MM organizations to create financial operating efficiencies. Helping them with the work of “righting” their financial data and layering on predictive insights can mean the difference between failing and growing in a competitive market.
The research highlights how market forces have been pushing CFOs to do more with less. What needs further examination now is their lived experiences: How have they managed to do more with less? What do they believe they need to steer their organizations in the right direction?
The CFO interviews we conducted reveal an unfiltered view of what the role looks like today. The evidence surrounding the reality in which CFOs operate underpins the seriousness of finance’s data problem. But their candid perspectives may be what makes the modern CFO’s story compelling enough to drive collective urgency in overcoming their challenges.