Eight trends finance leaders can't ignore

The rapidly changing business and political climate around the world in recent years has put finance leaders on the macroeconomic hot seat in an unprecedented way.

In recent months, my conversations with customers, partners, and industry leaders have revealed some common approaches and technologies that are helping these leaders succeed despite the tumultuous climate. While ongoing change is to be expected to continue, I wanted to highlight eight trends I’ve identified that we’ve seen allow finance leaders to respond and succeed. Here are the top trends I predict will have an impact on the technology decisions we make in the accounting and finance community:

1. Scrutiny of expenses increases

In 2023, accounting and finance professionals around the globe will pay closer attention to cost accounting and leveraging analytics to identify cost-cutting opportunities. Firms will seek to derive additional value from existing-but-underutilized software investments, and work to improve efficiency while minimizing new investments. Many firms will conduct regular vendor review cycles, pressure suppliers to absorb costs, and seek to renegotiate term agreements.

CFOs will look even more closely at the technology they’ve already deployed to identify additional value opportunities – such as implementing unused features, adding modules and users, and or broadening deployments of technologies that have proven their worth.

Whether it’s artificial intelligence, machine learning, or robotic process automation, I expect that, even in a budget-constrained environment, companies will continue to cautiously embrace new technologies to save money and extend staff. Vendors should work with customers that are not maximizing their solutions to increase the benefits they gain. In finance, that might be AI and RPA, reporting and analytics (with real-time data), predictive forecasting, and budgeting and planning.

The technology that many firms deployed during COVID-19 – particularly migrating to the cloud – will continue to yield benefits in 2023. I expect firms will continue to rely on cloud technology and the favorable security and agility benefits they came to appreciate during the pandemic.

2. The labor crunch eases

Although we remain in an unstable labor environment, last year’s staffing crunch will ease – especially at lower levels of the organization, as automation and analytics enable these staffers to allocate their time toward higher-value activities and upskilling junior employees. In accounting and finance, efficiency will be the new watchword. Automation will be the key to relieving the pressure and allowing firms to do more with less.

3. ESG initiatives remain a top priority

Although recessionary conditions will continue to spur cost containment efforts, we foresee little reduction in the emphasis on ESG efforts, though implementation velocity will vary. In the U.S. and Canada, where ESG reporting requirements are relatively lower, companies may downshift those initiatives and look to increase automation to create efficiencies. In areas like the UK, the EU, Australia, and much of the Asia-Pacific region, where regulations are more stringent, we expect ESG reporting will continue to intensify.

In all countries, companies will seek to lower the cost of compliance (and voluntary participation), as automated reporting and programs replace staffing and manual accounting of ESG metrics. For instance, the boutique hotel chain Dakota Hotels is not only demonstrating its commitment to increasingly environmentally conscious consumers, its also cutting its energy bills by tens of thousands of pounds each year by tracking usage and implementing energy saving technologies. These savings will be valuable in a recessionary climate, and as ESG initiatives continue to be operationalized by firms, they will increasingly be integrated into business decisions, as the benefits of building sustainable and automated ESG best practices extend not only to hiring and PR efforts, but also to financial gains.

4. The security mandate strengthens

As the value of your operational data grows, so does its value to competitors and bad actors. As cloud computing and distributed environments continue to evolve, cybersecurity has evolved from defined projects into a program of continuous improvement.

Security (for both systems and data) remains an ongoing operating burden requiring continuous investment, perhaps amplified as the value of information increases. At a recent CFO Summit held by Sage, the changing needs of cybersecurity were top of mind for CFOs and tightening security for remote workers was a priority. With the advent of widespread remote work, zero-trust security – the practice of defining security for each app and asset independent of other defenses – has replaced the walled networks.

5. AI and Artificial Intelligence transform finance

During the COVID-19 pandemic, many firms realized automation could be a useful strategy to mitigate labor shortages, alleviate internal staffing pressures, and improve customer service. Finance organizations that add smarter tools – like general ledger and AP automation – can offload rote and repetitive tasks to AI and focus more on delivering greater visibility and insight to the organization.

Companies will continue to seek analytics and real-time data as well as decision-support tools to optimize corporate performance. Actuals and forecasts on demand – using real time data – will become commonplace as the line between operational and analytical data blurs. This will help finance leaders create dynamic forecasts – a crucial capability during turbulent economic times.

What’s more, the next stage of AI – when systems make routine decisions and govern fully digital processes for certain transactions – is increasingly a reality for some early adopters. General ledger outlier detection is a prime example. In this model, transactions are approved automatically with fully digital processes, while the system identifies troublesome or atypical issues that require human intervention. Automation will continue to evolve from purely RPA-based approaches that automate the processes developed by humans to fully digital processes that proceed without human intervention.

For hospitality firms like fast-casual restaurant Tender Greens, automation and advanced reporting are cutting overhead dramatically and leading to better decisions. New reporting and dashboard tools have helped the company slash its accounting overhead 20% and grow sales 90%.

6. Digital networks continue to proliferate

Digital transformation will continue its relentless march in 2023 as SMBs embrace the power of fully digital business models. Digital-first businesses grow more efficiently, are more resilient, and benefit from real-time insights. And it’s not just businesses rushing to digitize – governments are pushing digitization across multiple fronts from tax compliance to digital banking and finance standards and government backed digital identities.

Digital networks have naturally emerged as the de facto platform for digitization. These networks create digital connections across business ecosystems, connecting SMBs to their customers, their suppliers, employees, banks, accountants, and government entities. By connecting entire ecosystems on a common platform, network operators are able to leverage the data flows in their networks to create powerful AI solutions that drive automation, monitor business activities for anomalies, and provide real-time insights.

7. The regulatory environment will stretch accounting resources

In the coming year, US companies will continue to finalize and automate changes to lease accounting and revenue-recognition from 2020 and 2021, though few substantive new regulations are anticipated in 2023. However, in Europe and the UK, B2B e-invoicing and digital tax timelines continue to move ahead, requiring companies to digitally submit greater numbers of invoices and tax information. Small and midsize businesses in the UK are acutely feeling this pain and are often compelled to seek professional assistance for the first time, placing a strain on companies and their accounting firms alike.

Many UK businesses will continue to implement solutions for the Making Tax Digital framework (despite a deadline reprieve from 2024 to 2026). They’re increasingly seeing the value of digitalizing taxation to improve operational efficiency, reduce errors, and gain greater visibility. E-invoicing momentum is also building across Europe with a potential mandate expected.

Companies should ask vendors whether they can rely on their finance and accounting system vendors to respond to these and other changes. They want regulatory changes to be reflected in the software they use, with accompanying automation, to reduce the burden on their teams.

One key area where we should expect more regulation is the acquisition, banking, and trading of cryptocurrency. While the use of blockchain and distributed ledger technology gains more traction in applications (outside cryptocurrency), regulation of cryptocurrency has not proceeded similarly. Given the recent spate of bankruptcies among cryptocurrency firms, we can expect global and national regulation, and increased reporting and operating requirements.

8. The supply chain continues to recover – slowly 

In most industries, supply chains will continue to struggle to recover from the effects of the COVID-19 disruptions. That’s complicated further by inflation, shortages of vehicles and containers, and delays in components and the manufacturing of goods. Shipping, rail, and trucking will remain heavily impacted, with the recovery in trucking further complicated by ESG requirements and tariffs and fuel taxes.

The war in Ukraine continues to create major disruptions across the EU, driving prices up, restricting movement of goods, and preventing Russian goods moving on important supply routes. Construction and housing shortages are also worsened by a lack of goods from Russia (primarily lumber) and shortages of workers.

Inflation has further complicated supply chain recovery. The rising cost of living is leading to greater salaries for workers, creating a highly undesirable wage-price spiral. Across the board, supply chains can accelerate their recovery by embracing logistics technology, AI, and predictive modeling, and by adding automation to optimize their businesses, comply with new regulatory requirements, and refine new ways of doing business in the post-COVID economy.

Responding to the challenges

As a CFO, how can you address the challenges in the coming year? First, you can educate your team with this Sage Speaks e-book that contains a fuller discussion of the challenges we’ve identified and discussed. Next, evaluate your finance stack to identify the areas where you can modernize operations and achieve greater efficiencies at lower cost. And you’re always free to consult your peers in finance through forums on the Sage site.

As we look forward to the coming year, we hope these predictions help you and your team to look holistically at your environment and how you can adjust processes to gain competitive advantage in the coming year, despite the recessionary conditions expected.