t's been another interesting year for construction CFOs across the globe. Just as organizations were starting to emerge from the many challenges and uncertainties of the pandemic and reverting their attention back to innovation and growth, the economic universe seemed to have a different plan. Instead, construction businesses are being forced to tighten their belts and brace themselves for another year of market uncertainty.

Prophix Software's CEO Alok Ajmera has pulled together some helpful insights and tips for construction finance executives to consider as we enter into the beginning of 2023, with an emphasis on consistent and rigorous financial planning knowing "cash is king!"

1) Cash will retake its crown headed into 2023. The economic shifts of the last few years have led to the perfect storm; a trifecta of interest rates rising, growth headwinds and steep inflation are placing a ton of pressure on cash - and businesses are feeling the squeeze. The best way for businesses to survive this challenging economic environment where “cash is king” is through rigorous and consistent cash management until we adjust in the new year.

2) Financial covenant management will be front and center

For highly leveraged businesses, those with any significant amount of debt, covenant management is critical in the year ahead to avoid putting the company at risk. If businesses are not managing their covenant tightly, they will be inviting the bank to come in and collect their cash. In contrast, businesses without debt are in a good position to prioritize growth and use their cash reserves to buy a competitor, grow market share, or make other strategic investments.

3) Forecasting gets granular, especially when it comes to cash flow

No one knows what the economic future looks like in the months ahead. Depending on where a business is situated, whether in North America or Europe, there are macro-economic conditions at play causing finance leaders to be meticulous about managing their cash. We will see finance teams conduct weekly and even daily cash forecasting.  Financial planning and analysis (FP&A) software will help companies to best manage this consistency, by automatically tracking and analyzing cash inflows and outflows so that finance leaders can predict and plan for potential scenarios ahead. This level of granular visibility will allow finance leaders to make quicker, better, more informed decisions in the face of complicated uncertainties.

4) Volatile currencies will challenge the cash throne

Currency fluctuations will continue in 2023, impacting actual profit and global competitiveness and placing added pressure on finance teams to handle contractual and operational risks. Finance teams with international operations will need to closely monitor accounts receivables, accounts payables and debt obligations, as changes in exchange rates run the risk of increasing the actual cost of an outstanding payment or decreasing the actual dollars received in payment.

5) Back to basics in finance

The new year will demand a call to fundamentals, where finance teams will be encouraged to step back and rethink processes, team skill sets and technologies that enable granular monitoring of financial principles and cash flow. Data visibility, financial discipline, and human decision-making will rise to the forefront of finance activities, paving the way for more advanced technologies like artificial intelligence (AI) and machine learning to take hold once businesses get back on their feet moving into the second half of the year.

6) Infrastructure and data investments will pay off

An anonymous Navy Seal was quoted stating, “Under pressure, you don’t rise to the occasion, you sink to the level of your training.”  This same idea can be applied to businesses’ financial planning and cash management headed into the beginning of 2023.  Businesses that double down on infrastructure, data, and broad analytics technologies now will benefit from a higher level of visibility into critical metrics such as cash flow and debt covenant management, for meticulous forecasting and strategic decision-making.

7) The employee/employer clash will continue

Governments around the world are taking steps to cull inflation and cool the economy, and employers are bracing for the resulting impacts by pausing hiring, freezing wages, and laying off staff. But friction is mounting between this macroeconomic environment and the immediate reality faced by employees, who see rising costs of goods and a still-bustling job market as justifications for salary increases. Organizations will be in a game of tug-of-war to hold onto their cash over the next 6-9 months as the job market, and employees’ expectations, level-set.