How to adapt to the financial challenges of 2023

The economic volatility that characterized last year has left businesses with a different financial landscape to survey in 2023. Interest rates are higher and less stable; investors are demanding greater reassurance of their returns.

So, how are interest rates affecting companies? How can they meet investors’ new expectations and keep their financial narrative convincing?

We put these questions to a panel of seasoned finance specialists: Séverin Henry (Qonto), Daphné Barthelet (Lydia), Francis Saillard (FSA Concept) and Benjamin Topper (Moon Surgical). 

Here’s what they thought.

The European Central Bank (ECB) issued its fifth consecutive increase in interest rates in February and has said it’ll look to continue that trend in March and even beyond. The main refinancing rate was zero at the start of last summer. It is now 3%.

What does that mean for businesses?

There are 3 key rates to follow: (refinancing rate, marginal lending rate and deposit interest rate). They’re raised in order to bring down inflation, which has been rising steadily since mid 2021. The ECB charges these interest rates when lending to commercial banks in need, and they in turn pass them on to their customers, both businesses and individuals.

The current cost of borrowing is therefore higher for everyone.

Another factor impacting businesses who deal in foreign currencies is exchange rates. Those, too, are currently volatile: 1 Euro was worth 1.15 US Dollars one year ago, then fell to 0.95 Dollars last September before making its way back up to 1.06 Dollars at time of writing.

This is something entrepreneurs must take into account.

Despite the present volatility, the exchange and interest rates appear manageable for most entrepreneurs, who are counting on a return to what’s typically considered normal over the course of the rest of the year.

Investors alter their demands and expectations in times of economic uncertainty. What, then, must businesses do make themselves investable in the current climate?

We’re seeing an adjustment in investment strategies and in ROI expectations. 

In the current context, what investors foresee is “a lower return from companies, and therefore lower share prices,” says Christine Rifflart, an economist at the Observatoire Français des Conjonctures Economiques (OFCE). So, they adapt their criteria for investing.

When young businesses are looking to raise funds, they must prepare a dashboard of Key Performance Indicators that reflect the state of their finances, such as recurring revenue (monthly or annual), operating margin, customer retention, customer acquisition cost or the evolution of the customer base.

Even more so than ever, the metrics must be presented with razor-sharp precision to be able to convince investors. Forward planning and meticulous preparation simply cannot, therefore, be neglected.

The first trick is to anticipate investors’ demands and keep a dialogue open at all times. It’s important to reassure them with frequent updates on your company’s progress. It could take the form of a monthly newsletter, for example.

Communication with investors is not something that should be limited to fundraising rounds. 

A second good habit too adopt is to put in place a weekly (or monthly) reporting schedule with your investors so they are always in the loop when it comes to your company’s financial performance.

Maintaining healthy relationships with investors requires plenty of preparation and discipline. This is where business founders should be able to count on their CFO to contribute to strategic decision-making.

The Chief Financial Officer has an integral part to play in the success of a company and this is never more true than during a fundraising round; he or she should enjoy a close, privileged working relationship with both the founder and the investor.

So how the two profiles share the burden amongst themselves?

The role of the CEO is to be the face of the company, its Number 1 representative. He or she needs the CFO to assemble all the data needed to tell the company’s full financial story. The two profiles go hand-in-hand and work together closely.

The CFO can be a strategic consigliere, rather than just the person who manages the company budget and oversees its finances.

Even if the founder knows by heart the financial data provided by the CFO, the finance director should be able to challenge the founder and shape company strategy.

The profile of the CFO has evolved rapidly over recent decades, from the ‘Number Cruncher’ of old to the Strategic Mind of today. The role is more complex, comes with greater responsibility and demands more time and attention. Fortunately the tools available have evolved at the same time: account reconciliation and spend control can be automated, leaving the CFO to focus on the strategic elements that the machines can’t (yet) manage themselves.