Smart moves for hard times.
Use the urgency of a recession to make important operational improvements.

It can take the urgency of hard times to give CFOs latitude to make important operational changes and implement strategies that provide their organization with the flexibility for long-term success. The need to drive profits doesn't change depending on the economic situation, but taking a closer look at processes and expenditures becomes increasingly apparent when the word “recession” enters into the dialogue.

In a 2008 survey by the Institute of Management Accountants (IMA) and Ajilon Finance, the majority of finance professionals (54 percent) think that our current economic slowdown will make their job more complex. While cost savings and prudent investments in the company's future should both be on the table for discussion now, companies and their finance chiefs will likely need to make some changes. When implementing these strategic moves, it is essential to take a long-term view to support growth versus having short-term, knee-jerk reactions to the current economic situation.

This article will cover effective long-term savings and investment strategies — taking a closer look at the hard choices CFOs need to make when all of a company's top management feels the finance and expense pressures usually housed in the finance department. CFOs who take a long-term view of management will benefit from this two-pronged approach, as opposed to a strict regimen of cost-cutting. Prudent investment when times are tough will result in a stronger organization, both now and when the recession eventually abates.

On the cost-savings side.

Create a worst-case, year-long cash flow scenario.

CFOs can develop models for how to buffer a company against a 25 percent revenue decline, or other scenarios that would require an across-the-board reorganization led by the CFO's office. There are new, sophisticated tools, including business analytics and predictive modeling, to help CFOs understand when markets might shift and when the financial function needs to respond.

Keep a tighter rein on inventory.

CFOs need to stay in close contact with the sales force to track inventory flows and make adjustments accordingly — the goal is to reduce costs by not having too much or too little inventory sitting in warehouses. Bob Prosen, CEO of the Prosen Centre for Business Advancement, believes that the most important step towards recession-proofing a business is to “Organize receivables and inventory.” Also, be sure to look into new Web-based inventory systems and applications.

Cutting corners should not mean reducing quality.

If trimming some fat is called for, CFOs must ensure it happens in areas with the least immediate impact on quality. For example, research and development typically is expensive but may not be critical – at least in the short term. Many business gurus might say that investing in R&D is critical to be well positioned at the end of a downturn, but keep in mind that may not be true in all cases. It all depends on the company's current market position, sales, product pipeline, etc. This is not to say R&D should be eliminated, of course, but there may be ways to reduce short-term costs associated with it

Review contracts for ways to cut costs.

Think about ways to renegotiate supplier prices during a recession. There may be suppliers out there who can deliver the same quality products at discounted prices. Consumers shop for discounts all the time – why can't CFOs during a recession?

Move from suppliers to customers/clients.

A recession might be the perfect time to review a client list. It even may make more sense to cut ties with certain clients during rough economic times. Or, at the very least, try to figure out how to make them more profitable. For example, the impact of late paying accounts is heightened during a recession when dollars to finance operations are limited. Also, it might be time to solidify relationships with the best customers. By doing so, a CFO might even generate new business through a strong referral.

Consider outsourcing.

Naturally, economically challenging times are ripe for reviewing internal processes on all levels of an organization that are best suited to outsourcing. IT or less complex back office operations are examples of two of these types of processes.

On the spending side.

Partner closely with sales.

During a recession, CFOs should work especially hard with the sales force to develop strategies to grow the business. If the company is a customer service-oriented business, for example, it might be the right time to invest in improving the customer experience by purchasing new CRM applications.

Don't forget the power of marketing.

Not only is it a good idea to leave marketing and advertising budgets intact, but perhaps they should be increased. Marketing and advertising get the word out about a company, increasing visibility — not only can they bring in more business, but also signal to the marketplace that the organization is strong, and not afraid to do business in the current climate.

Focus on people.

An economic downturn can be the perfect time to work with the HR department and line managers to see if, together, everyone can build an even more talented workforce. Hiring during a recession – when competitors' top talent may be uniquely available – can be a wise investment despite the short-term cost .

Other talent management initiatives that could involve some spending, but might make a stronger company in the long run, include job-sharing programs, flex-time schedules or even telecommuting.

Extend the digital revolution.

Conventional thinking used to be that “face time” was important. But face time often means costly travel time. And with today's YouTube/Facebook generation coming into the workforce, face time is being quickly redefined by new technology. Traditionalists might still believe that in-person meetings are best, but Gen Y employees are used to e-communications, so there is increasingly less risk to businesses using it. A good strategy could be to replace some travel expense with high-definition videoconferencing. Today, vendors large and small are offering relatively low-cost HD videoconferencing solutions. While there is an upfront investment, when used smartly, the long-term savings can deliver a strong ROI.

Think about structure.

CFOs can use the current economic climate to take a hard, comprehensive look at the company's overall structure. Maybe it's time for an “extreme makeover.” A good start would be to deploy an internal assessment, to see if the time is right for restructuring. It may sound over the top, but a recession can be the perfect time to re-evaluate every business process within the company, taking a “no sacred cows” approach to change. Moves like consolidating office locations, reducing redundant headcount, closing facilities, or dumping non-productive assets involve upfront costs, but they might make sense when economic times are challenging.

Look inward and forward.

A recession is a scary time for everyone. CFOs are in a unique position to see how financial decisions can affect the company from top to bottom. They should seek out employee input before making any drastic financial changes within a company. Employees at all levels often can deliver valuable and insightful information when it comes to finding ways to work smarter and reduce costs without sacrificing quality or customer service.

Most importantly, always keep an eye on the company's long-term strategy and success when implementing changes to processes and strategy. Although periods of slower economic growth are an important time to make changes, these changes shouldn't be isolated to fixing the immediate problem and ignoring the bigger picture and company game plan.

The bottom line is this: being completely recession-proof is close to impossible. However, there are some creative steps CFOs can take in keeping a company running at peak performance, no matter how tough it gets out there. Best of all, when the recession ends, the company will be all the better for it.

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