In an interview with BW CFO World, Rohit Pareek, Chief Financial Officer (CFO), GOQii, discusses how the business landscape is in a constant state of evolution, presenting new challenges and opportunities. He emphasises that in this dynamic environment, financial resilience is no longer just a luxury but an essential requirement. The interview delves into strategies aimed at constructing financial resilience, underscoring its significance for businesses at every scale and phase
In your opinion, what are some effective strategies for cultivating financial resilience in dynamic markets?
We live in a world where businesses as well the ways to do business are changing and evolving. In light of this, the answer to this question also depends on the type of company we are talking about – large company, family-owned business, startup funded by PE / VC investors, SME etc. Entrepreneurs are fortunate to be in an era where capital is available much easily then anytime in human history before. Having said that, the recent private funding slowdown poses question marks on the steady availability of external capital. So, in a dynamic market, it becomes even more important to go back to the roots and think resilience from a first principles perspective. Firstly, it’s essential to maintain a diverse profitable revenue stream to mitigate the impact of market fluctuations. This could involve expanding into new markets or offering complementary services. Secondly, prudent financial management is crucial, including maintaining a healthy cash reserve to weather unexpected downturns. Further, its important to think of financial risks not only from the usual financial ratio perspective but also threats like cyber-attack and data leakage. Even things like bank failure – who would have imagined that a US bank like Silicon Valley Bank, would go through what happened.
How do you define financial resilience, particularly in the context of dynamic markets?
Financial resilience, in the context of dynamic markets, is the ability of a company to withstand and recover from economic uncertainties and disruptions while maintaining its core operations and financial health. It encompasses not only financial stability but also adaptability and agility in responding to market shifts. A financially resilient company can navigate challenges, seize opportunities and emerge stronger in the face of adversity. A financially resilient company is capable of absorbing shocks which could range all the way from market downturns, external events like Covid, new competition, regulation change and a whole lot of planned and unplanned uncertainties. Further, financial resilience should be seen specific to the situation of each company, it would be unfair to apply the same standards to companies of all sizes and stages. The message I would convey to fellow finance professionals is not to get bogged down but see it as a journey where the only way is to work every day to keep improving.
As market conditions change, financial priorities can sometimes shift. How can individuals best identify and adapt their financial goals in a dynamic market?
In a dynamic market environment, individuals must adopt a proactive and flexible approach to financial goal-setting. This begins with regularly monitoring market trends, assessing the competitive landscape, and evaluating internal capabilities and resources. By staying informed and agile, individuals can identify emerging opportunities and risks, allowing them to adjust their financial goals and strategies accordingly. Collaborating across departments is a must to enhance the decision-making process. I would also highlight the importance of financial professionals taking time out to keep learning. Gone are the days when accounting was the only thing expected from finance teams. I cannot overemphasise the importance of technology in today’s world of finance – right from data analytics, AI, blockchain, automation, technology aided collaboration to so many other things. Finance professionals have to be well equipped to make the best use of technology to manage the changing priorities.
How do you approach scenario planning to assess the financial resilience of the company in the face of unexpected market disruptions?
Scenario planning has to be the cornerstone of risk management strategy. It’s important to conduct thorough assessments of various scenarios, ranging from mild fluctuations to severe disruptions, considering factors such as economic downturns, regulatory changes and technological advancements. By simulating these scenarios and analysing their potential impact on financial performance, we can identify vulnerabilities and develop contingency plans to mitigate risks. The frequency of doing such exercise could vary depending on the exact situation. This proactive approach not only enhances preparedness but also fosters resilience by enabling the business to respond swiftly and effectively to unforeseen challenges.
How do you communicate the importance of financial resilience to other departments within the company and how do you ensure alignment across all functions?
Effective communication is paramount. CFO, as well as the finance team, have to be seen as business enablers rather than business hinderers. Once that trust has been built, it is important to emphasise that there has to be certain discipline with which the business needs to run. Once the finance team uses real world examples and demonstrates the link between financial stability and long-term success, it instills a shared understanding of its significance.