The current moment is not so much one of significant financial crisis, but of constant and unpredictable change. It's as if your opponent has substituted players, switched up their playbook, and perhaps even swapped uniforms. Market forces and sentiment are evolving so rapidly that urgency and speed of adaptation are mandatory for CFOs who want to protect and grow the value of their business.

Recently, there has been a shift in investor focus from growth to profitability. The last year of rising interest rates and, more recently, the regional banking crisis have increased the cost and decreased the availability of capital. Rising rates have provided an attractive alternative to risky equity investments, and revenue valuation multiples have crashed downward for many industries. To combat these forces, investors, boards, and management teams have refocused on profitability, which has in turn impacted the demand environment. In these choppy waters, CFOs now need to determine the right mix of growth and profitability to create the most value for their shareholders. But how?

I propose a three-step framework to attacking this challenge:

1. Determine the appropriate mix of profitability and growth for your business.
2. Build a realistic, bottoms-up plan to achieve that ideal mix.
3. Arm your teams with the talent, tools and tactical guidance to manage the business to that plan while retaining the agility to adjust as new information becomes available.

Every team — finance, marketing, HR, sales, operations — must bring their “A” game to this process to ensure success. Let’s dig into each of those tasks.

#1 - Determine the right mix of profitability and growth for your organization

Determining the ideal version of your company from a valuation perspective is no simple whiteboard exercise. You'll want to access multiple data sources to understand how growth rates, margins, and revenue/profit mix are correlated to valuation multiples for your business. Additionally, there are many other relevant questions to investigate: What are the comps for others in your industry? What are your investors targeting? What's reasonable given the state of your business, customers, and market? A data-focused finance team might even use R-squared to test those correlations, comps, and other data.

Much data suggests that growth is still valued at a premium, and if your business can grow at 200% with a profit and cash flow neutral position, continuing on that path likely makes sense. However, for businesses with trade-offs between growth and profitability, current trends might point to a healthy balance of profits and growth, say profitability of 20-30% and growth rates of 10-20%. That balance will be different depending on industries, segments, company sizes, and investor expectations. Do your research, determine your best mix, and be prepared to justify those goals.

#2 - Build a realistic, detailed plan that your business can execute to achieve your valuation goals

You’ve defined success; now you just need to get there. The best way forward is to build comprehensive models of different short- and long-term scenarios. Not high-level targets but granular plans and what-ifs that take into account potential investments, cutbacks, competitors’ moves, market shifts, and more. Achieving these macro goals requires input from all teams across the company. Finance needs to know how to evaluate progress toward financial goals. Marketing must understand program ROI and contribution to revenue. HR must ensure the right players are in place and each department has the resources needed to execute to the bigger plan.

That level of granular forecasting, modeling, and scenario planning can’t be done without modern technology. Even small businesses can’t rely solely on disconnected and limited spreadsheets to create plans and model out different scenarios. Here’s an example: we work with a Chicago-based global supplier of thousands of consumer and industrial products. Like most manufacturers, the pandemic and resulting supply chain issues drove up raw material costs, but spreadsheet-based processes slowed the finance team down by months. Eventually, they discovered hundreds of customers weren’t meeting profitability targets to the tune of nearly $3 million per month in unrealized profits. Modernizing away from spreadsheets, and speeding up analysis and price adjustments, turned that into a $9 million monthly profit boost.

#3 - Execute and adjust continuously

After determining the ideal version of your business and building the plan to become that company, you might be thinking the heavy lift for Finance is over. But as Mike Tyson is famous for saying, “Everybody has plans until they get hit.” CFOs understand that plans are likely to go awry for even the most high performing teams and that adjustments will be necessary.

How well a team is able to monitor performance against their plan is the difference between making the necessary and proactive adjustments to course correct and being too reactive and missing your opportunity. Put in place the processes and tools to monitor leading indicators, actual performance, and external market changes. Automation can ease the burden of gathering data, creating dashboards, communicating progress, and collaborating with the business.

The game has changed, and CFOs need to change with it

As you turn your attention to improving profitability and cash flow, while finding the right profit/growth mix for your business, remember that achieving peak financial performance necessitates a team effort. Involving marketing, HR, operations, and other departments in financial discussions and providing them with the necessary tools and information has never been more critical. With constant change virtually guaranteed, CFOs must collaborate across the organization to devise a superior plan and ensure the plan's execution adapts to the ever-changing conditions.

Attaining your business's full potential in this constantly evolving landscape is undoubtedly challenging, but by embracing collaboration, data-driven decision-making, and an agile mindset, CFOs can effectively guide their organizations towards a more sustainable and prosperous future. As the old adage goes, "The only constant in life is change," and today's CFOs must be prepared to confidently navigate these shifting tides with adaptability and resilience.