Why CFO confidence is falling — and what should replace it

Confidence among finance leaders fell sharply earlier this year, and although it has begun to recover, caution is still the prevailing mood. Phil Ellerby, managing director of Northern Accountants, explains how businesses can build genuine financial resilience without letting caution turn into paralysis.

Earlier this year, Deloitte’s European CFO Survey found that almost half of finance leaders had become less optimistic in just six months, a larger share than at any point since 2022. Confidence has since begun to recover, but the defensive mindset it created does not seem to have gone away. Forecasts are still being revisited more often, investment decisions are being pushed back, and every item of cost and capital expenditure is being examined more closely. 

Consequently, in many organisations, attention has shifted firmly from growth, to protecting what the business already has.

None of this is panic, and in uncertain conditions a degree of defensiveness – not to mention caution – is sensible. But caution has a way of compounding. A sensible pause on one investment becomes a freeze on all of them. A review of headcount evolves into a hiring ban. And careful cost control can morph into blanket cost cutting across the business. 

Caution also runs the risk of becoming cultural, meaning it outlasts the catalysts that prompted it in the first place. For example, a business that tightened up sensibly in the spring can find itself still operating in defensive mode months later – ‘just to be on the safe side’ – even after the picture has changed. 

That is often where the real damage is done, because some decisions are very hard to reverse. 

A business that cancels mission-critical investment, loses experienced people or stops recruiting altogether, for instance, may get through the uncertainty only to find itself poorly placed when confidence returns. Meanwhile, what if competitors held their nerve and moved ahead?

Of course, this is a complex and often high-stakes area, where businesses don’t want to make the wrong move. But more often than not, I believe the aim should not be to do less, but to make better-informed decisions. In my experience, the organisations that come through periods of uncertainty in the best shape are rarely the ones that act the fastest. They are the ones that think most clearly.

Plan more often and for more than one outcome

Annual budgets still have their place, but they are built on assumptions made months in advance. And when conditions are continually shifting, those assumptions can become outdated very quickly. That means the business risks measuring itself against a plan that no longer reflects reality.

Re-forecasting more frequently – on a monthly basis, or with even greater cadence when things are volatile – keeps decisions grounded in what is actually happening. 

It is also worth modelling several different scenarios rather than one. If leadership teams have already considered what a best, expected and worst-case year looks like, and what they would do in each, they can respond quickly and calmly when circumstances change. Decisions made against a prepared plan tend to be measured. Decisions made in a hurry often represent over-corrections that cause lasting damage.

Protecting working capital

Working capital deserves particular attention when confidence is low, because it is often where cash quietly becomes tied up.

On the debtor side, the disciplines are straightforward – agree clear payment terms at the outset, invoice promptly and accurately, and follow up overdue accounts consistently. Many businesses feel uncomfortable chasing payment, particularly from long-standing customers, but there is nothing unreasonable about expecting to be paid for work delivered. Reducing debtor days by even a small amount can also make a big difference to cashflow, so consider if payment terms can be revised too.

Think also about supplier relationships. It might be possible to negotiate better payment terms for your own business. However, be wary of stretching payments to the point where key suppliers are put under strain. This simply extends the financial burden and can damage relationships you may later rely on when conditions improve. 

Finally, it may help to sort spending into three categories – costs that are essential, costs that create value, and costs that can reasonably be deferred. That gives leaders a clear basis for prioritising expenditure, rather than cutting evenly across everything.

Profit and cash are not the same thing

This is an age-old point but an important one to revisit. 

One of the most common mistakes I see is treating profit and cash as interchangeable. Profit is a measure of performance over a period, whereas cash is what is actually available to pay staff, suppliers and lenders in any given moment. We cannot forget that a business can report a healthy profit and still run into serious difficulty if money comes in more slowly than it goes out.

This catches out growing businesses in particular, as well as those making decisions under pressure. It’s tempting to take on more work, but that often means paying for materials, people and stock well before customers settle their invoices. The busier a business becomes, the wider the gap can grow, however encouraging the figures may look on paper. 

So when confidence levels waver, think carefully about cashflow, not just your overall targets for the year. I would regard a rolling 13-week cash flow forecast as essential, to provide a clear, regularly updated view of the weeks ahead, model pressure points before they arrive, and allow time to act. 

Of course a cash buffer also helps, but this is easier said than done if the pressure is already on.

Margin before revenue

Deloitte’s earlier survey found that even among European CFOs predicting revenue growth, 42% expected margins to be flat or falling. This links back to an earlier point that when profitability comes under pressure, the instinct is to chase more sales. But this can make matters worse. 

A better starting point is to look closely at the business as it stands. Which products, services or clients actually make money? Is anything being underpriced? Could the cost of delivery be reduced without affecting quality? How well are you serving the clients who suit the business best? A relatively modest improvement in one or two of these areas will often do more for the bottom line than a significant push for new revenue.

Knowing your numbers

If there is one thing that underpins all of this, it is having an accurate, up-to-date picture of the business. That means robust management accounts, clear visibility of cash, and a proper understanding of the measures that determine resilience – margin, overheads and working capital.

It also means being willing to ask for help when the figures raise questions that are difficult to answer. Uncertainty is far less dangerous when you can clearly see where you stand.

This is where a high-performing CFO can make a real difference. In the current climate, more than ever, businesses don’t need a historian. Reporting on what has already happened is important, but in difficult periods organisations rely on someone focused on what happens next.

Someone who can help the board interpret financial information, spot early warning signs, and build realistic forecasts and recovery plans. Someone confident speaking to banks and other stakeholders on the business’s behalf, and someone who can bring calm perspective under sustained pressure.

That’s the reason fractional CFOs have become so popular in organisations without the budget – or need – for a full-time equivalent. I’d go so far as to say a solid CFO has never been so important.