In January 2020, hiring experts predicted there would be a significant surge in diversity and inclusion spending this year. That may be the only spend projection that came to fruition.
Thanks to COVID-19, businesses spent much of 2020 just trying to stay afloat. Finance teams were essential to that effort. When the going got tough, finance teams adjusted budgets, took on new responsibilities, and learned to play a more strategic role in the business.
Unpredicted spend threw off forecasts and budgets
COVID-19 determined where businesses spent their cash, at the same time that BLM demonstrations inspired companies to invest in diversity and inclusion. Finance teams had to restructure their budgets to meet these changes.
What got cut
Travel and entertainment (T&E) spending dropped off substantially in March, as borders closed and fears around the pandemic escalated. Event spending declined, too, although many businesses cleverly moved conferences online.
Diversity and inclusion (D&I) spend also took a hit in the early days of the pandemic. Jobs focused on furthering inclusion seemed like the easiest place to make cuts. “It was one of the first things on the chopping block,” Mandy Price, cofounder and CEO at Kanarys, told Forbes. D&I spend increased a few months later, however, following the death of George Floyd and in response to the subsequent pressure from employees to take a stand against systemic racism.
Where spend surged
The first wave of the pandemic fueled one of the biggest surges in technology investments in history, according to KPMG. Businesses needed to find new ways to reach their customers, which led to a spike in social media spend, particularly on Instagram.
And with so many employees working from home, businesses spent heavily on collaboration tools, such as cloud-based software solutions. Employers also allowed employees to purchase at home office supplies, like desks, lamps, and printers, to ease the burden of remote work. In fact, spend on WFH items increased 7,121%.
Spending Changes by the Numbers
↓ The US travel industry saw $491 billion in losses since March
↓ The $1.1 trillion global events industry was put on hold
↑ Office supplies spend increased 80% y/y in March
↑ Technology spend increased by $15 billion per week
↑ Distributed cloud interest increased from 11 to 21 percent y/y
↑ Companies pledged increased diversity and inclusion spending up to $150 million
The impact for finance teams
These changes, and the ongoing unpredictability of 2020, brought to light the need for real-time visibility into spend. Finance teams needed to quickly balance and adjust budgets to meet shifting needs but were able to do so effectively only when they could see exactly where cash was flowing into and out of the organization. Those that had technologies in place to foster this holistic view of spend were able to confidently plan out new investments. Those that did not were left guessing where and when they might have available funds.
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Finance teams faced workforce challenges
The structure of the workforce also changed drastically in 2020. Many businesses laid off employees, either at the first signs of trouble or when specific roles became irrelevant. Another 38% of businesses implemented or were considering pay cuts as of April, according to a Korn Ferry survey. These changes impacted cash flow and projections.
Finance teams were also tasked with evaluating and applying for Paycheck Protection Program (PPP) loans, which were available to privately held companies with fewer than 500 employees. If they decided to apply for the program, they needed to ensure that any changes to their companies’ workforces didn’t impact their eligibility for loan forgiveness, and then apply for forgiveness within 10 months of the “covered period.”
Because the legislation was brand new, it was not easy to navigate. There were not initially a lot of resources available to help understand what was required, so finance leaders relied on professional communities, such as Controller Collective and the CFO Leadership Council, for information.
As if this wasn’t enough complexity, the shift to remote work added new tax challenges for finance teams. Many employees moved out of metropolitan areas (often to new states), which changed their income tax obligations. In some cases, these moves also created new sales tax obligations for employers. Businesses pay sales taxes according to a number of factors, including the physical location of their operations. An employee who moves to another state effectively creates an “office” in that state and changes the business’s nexus status.
The impact for finance teams
With a remote workforce, forward-looking finance teams enabled systems that supported employees, wherever they are. They found they could no longer rely on a physical location to pass around shared corporate cards, submit paper receipts, or talk with non-finance employees face-to-face when an issue arose. They needed a process where remote teams could access company money from anywhere, in order to make business purchases without friction and in compliance with company policy.
CFOs played an increasingly strategic role
The pandemic left many businesses strapped for cash. CFOs and their teams have played a key role in finding resources to meet the company’s goals—a trend that is likely to continue as businesses adapt to digital transformation and an increased pace of business change.
Forty-two percent of CFOs now spend as much as half of their time in a “strategist” role, according to Grant Thornton’s 2020 CFO survey. Nick Vellani, a national managing principal of financial management at Grant Thornton, explains what that means:
CFOs are preoccupied analyzing their businesses and refocusing resources to support corporate strategy. As a result, CFOs have had to look for new ways to capitalize on trends like automation and outsourcing. The simple truth is that the CFO is now a primary decision maker, thought leader and voice of reason.
Business leaders have a much harder time forecasting and planning than they had in the past. Finance teams are now expected to consider and model several different scenarios, not just make projections based on historical trends, according to CFO Dive.
Not surprisingly, the demand for strategic finance professionals is increasing. “I’ve never seen so many VP of Finance job descriptions. VCs are really pushing for this role because they realize they need more people on the finance team who can think strategically about finance,” said Peter Nesbitt, VP of Finance at Teampay.
The impact for finance teams
In order to be strategic, CFOs need real-time visibility into their business’s financial activities, including spend. This allows them to develop plans based on the most accurate, up-to-date numbers. Armed with the right information, they can make better, faster decisions about budgets, investments, and forecasts.
COVID-19 was just a catalyst for existing trends
2020 may have been an unpredictable year, but the market shifts were already in motion long before. The pandemic shined a light on the forces already at work in the business landscape and pushed finance teams forward into the modern era.
The nature of work has changed, and it’s not going back in 2021. Many employees will work from home permanently, stakeholders will continue to demand real-time information, and shifting market conditions will require continual adjustments to forecasts and budgets.
We can’t be certain what 2021 will bring, but there is one thing we know: taking a proactive approach to finance operations is the only way to get ahead. By embracing technology that offers real-time visibility, total control, and remote capabilities, finance teams can meet the challenges of the future, whatever they are.