The ‘C’ in his title may not stand for “creative,” but Brian Goffenberg is a good example of a finance leader who approaches expense management almost like an artist.
As the CFO of VitalHub, a Toronto-based provider of health-care applications, Goffenberg has learned that smart budgeting requires vision – or in other words, being able to effectively imagine what a company might need in the future. Then, as business conditions change, he works with his team to paint a picture of what success could look like, even if it means spending less money.
The result is that Goffenberg feels VitalHub is in a strong position to weather the current period of economic uncertainty, even as forces such as rising inflation put increased pressure on everything from wages to pricing.
“It’s always been our culture that we’ve been pretty tight and watch what we spend,” Goffenberg told Retained Learnings in a recent interview. “We set our budgets and we’ve managed them to the right levels. For us it’s pretty much business as usual.”
Expense management becomes a top business priority
Goffenberg’s perspective is a shining light against the backdrop of the predominant economic narrative
According to the most recent business outlook survey from the Bank of Canada, for example, overall positive sentiment has dropped from approximately 49%in August 2022 to about 25% as of October. More firms have also said their future sales indicators look worse than a year ago.
Meanwhile, Scotiabank’s third annual Path to Impact report found that nearly a third of Canadian small businesses say their number one priority over the next three months will be finding places to cut costs.
“People have to understand that money is going to be hard to come by in the next little while,” Goffenberg said. “Interest rates are going to be higher. If you go to the market to raise funds, it’s going to be harder. So you absolutely have to hunker down and make sure that whatever you’ve got goes as far as it can.”
This reality doesn’t have to be as doom-and-gloom as it may sound. There’s a path to optimism, according to Goffenberg. Getting a handle on expense management could help future-proof startups and mid-sized companies to be more agile, resilient and ultimately more successful.
“When you become less optimistic about the numbers in terms of what you can sell, it puts a greater scrutiny on your product,” he said. “You become much more aware of risk and how to run your business. It can actually be healthier than operating a business in the more frothy times because it’s a better test of your market.”
That said, Goffenberg acknowledged that there is a whole generation of finance professionals who haven’t faced this kind of economic turbulence before. He offered some of his core expense management principles to help guide his peers towards making the tough decisions that may come up:
1. Draw a realistic map of your financial runway
Take stock of your existing cash flow and how long you could manage if it were to be impacted by business disruption.
Do it sooner rather than later. According to Goffenberg, a mistake that companies often make is waiting until it’s too late to steer through economic turbulence. It’s impossible to maintain clarity with respect to expenses unless you’ve done your diligence upfront.
“Most entrepreneurs, and people in general, are pretty optimistic by nature,” he said. “If you’ve got a business that’s generating cash, then make sure that it’s generating the right amount of cash. And if it’s not generating cash, then you’ve got to be pretty sure how long your runway is because you’re going to have to go to market somewhere to get financing. And the sooner you start doing it, the better.”
2. Gain visibility into current expenses and spending trends
Sometimes when economic turbulence nears, leadership teams gather to review where their money has been going. If the result is a lot of surprised or even horrified expressions on people’s faces, Goffenberg said it can reflect a corporate culture where tracking and clear accountability have not been adequately developed.
“You have to start that (culture-building process) way earlier,” he said. “If you’re not yet making a profit, you’re sending shareholder’s money, or the bank’s money. You can’t run a business that way.”
While expense management might have been more difficult to do in the days when the work involved a lot of paper and manual effort, Gottenberg said technology is offering a better approach for businesses of every size.
“I mean, the fact that you can see spending happening in real time means there is less that slips through the cracks – fewer issues that you would otherwise only find out about a month later,” he said. “That has definitely helped.”
3. Prioritize the expenses that contribute directly to customer experiences
You might need to pull back on how much goes towards office supplies, but there will be other areas where the decision to spend is less cut and dried. That is why Goffenberg likened the role of finance leaders to being a sort of chameleon.
Much like the way chameleons change colours depending on their environment, for example, working in finance means occasionally looking beyond the bottom line and putting themselves in the shoes of those they’re serving. Some expenses are important investments, especially with respect to converting prospects into buyers or building customer loyalty.
“I think you want to safeguard the customer experience as much as possible,” he said. “You definitely don’t want to erode that, because this is what’s keeping the lights on, for the most part.”
Not a customer experience expert? That’s okay, because organizations like the Customer Strategy Alliance have done research that ranks areas of investment and common priorities.
4. Empower and advise (but respect) the CEO
CFOs don’t oversee expense management entirely on their own, of course. Beyond their finance team, they also have to collaborate with many other stakeholders, including the most influential leader of all — the CEO.
Recent data from market research firm Gartner found CEOs and CFOs are aligned on many areas of cost-cutting, such as M&As, but they’re not always going to agree. That’s actually a sign of a healthy relationship, according to Goffenberg.
“The CEO and CFO have to challenge one another,” he said. “At the end of the day, though, I think the CFO needs to understand that they’re the No. 2 person, not No. 1. If a CEO decides to go into a direction they disagree with, they’ve ultimately got to support that decision, even if it’s not their decision.”
5. Combine numbers with business acumen to separate needs from nice-to-haves
When employees sense that CFOs are tightening up the ship, there can be a natural impulse to become defensive about the spending within one’s own business function. Finance leaders need to navigate that by reminding everyone of the organization’s core mission and breaking down which expenses most directly advance that mission, Goffenberg said.
This is an art because some areas offer potential, but not guaranteed, results. He used a trade show as an example. A marketing department might argue exhibiting at a trade show will bring in more leads for the sales team. CFOs might want to ask to look at any data that shows the revenue that can be attributed to those activities in the past.
In the end, it’s a judgment call, and Goffenberg offers a handy “50%” rule of thumb to help make it. “You have to ask yourself the question, am I going to get the return? And if the answer is no – or if you’re less than 50 per cent positive it will – then you probably shouldn’t be spending there,” he said.
Final thoughts: The one expense everyone cares about
It’s one thing to say no to certain business trips or a team lunch. It’s quite another to have to start looking at headcount, Goffenberg said. Finance leaders who have never had to worry about making payroll will quickly learn that it’s far better to make strategic cutbacks in other areas before pruning the talent among your team.
This is a final way in which expense management could be thought of as an art form: no matter what you do, you’re going to have your fans and your critics. Goffenberg said focusing on the people you’re able to work with and mentor helps provide the kind of fulfillment that makes the more challenging times easier to ride out.
“Business is business. Sometimes it’s fun, sometimes it’s more stressful, but I’m fortunate that I’m in a business that’s growing and that operates in a nice field,” he said. “As long as I’m learning and I’m being challenged, I’m happy.”