Innovation in Isolation

  • By Stephen Leishman
    • Mar 23, 2021
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Innovation in Isolation

A year on from the first lockdown we have looked at the impact the COVID pandemic has had on CFO’s and what we are hearing from our clients.  

The role of the CFO and wider finance teams is continually changing. Beyond numbers and data, CFO’s are required to be strategists involved in shaping the future of the business. What we are hearing is how the modern CFO is prioritising, how our clients are shifting their approach, and the common burdens resting on their shoulders.

As well as balancing the need to protect company value today, the challenge facing today’s CFO’s is how to ensure investment to enable future growth at the same time. More and more, we are seeing that to succeed in the role CFO’s are having to find a way to balance the more traditional responsibilities with new mandates.

As the role is ever more broad and complex, we are seeing the need to put in place expert support with additional expertise to ensure strategies are effective.

According to recent research by Accenture (March 2021), while the description varies across sector and industry a number of key themes pop up as challenges time and time again for the Directors and CFO’s we work with:

Ensuring business strategies factor in the current environment     54%

Identifying ways to improve cash flow                                                  51%

Proactive initiatives to minimise future disruption                            50%

Reviewing compliance controls                                                               47%

Improving visibility into organisational information/data                46%

Reducing cost of operations                                                                     43%

One thing that links the leaders of all of these organisations regardless of sector or size is a more profound focus on the risk involved in changing the current status quo.

Most CFO’s short term risk focus at the beginning of lockdown was on protecting financial positions, but the pandemic has also accelerated many other threats from supply chain risk, to customer behaviour changes to staff health and wellbeing – something we are noticing from enquiries to our associated HR & Employment Law firm, Lex Leyton.

The events of the past year have served to increase pressures further, with 8 out of 10 CFO’s saying that the pandemic has triggered more requests for them to manage risk among other changes to their role.

It seems that the focus today is not just about protecting the financial positions but also increasing resilience. The pandemic has forced us all to sit up and take stock of our ‘what if’ protocols and processes.

For example, we are regularly seeing companies engage with us to review retrospective claims made under HMRC’s Research & Development Tax Relief scheme. During the course of the pandemic Leyton UK have worked with over 3,800 clients, helping to return over £200million in R&D Tax Relief.

This along with other reliefs and incentives (such as Patent Box, Capital Allowances and Energy Relief) have been utilised as an important but relatively painless process to boost cash flow and reduce the cost of operations. This has been a worthwhile exercise with a 38% average uplift when compared to initial relief received.

The challenge our clients face, as a result of common misconceptions and misunderstandings, is  having confidence in what day to day activity qualifies as eligible R&D within HMRC’s legislation. We typically see the same common areas missed or overlooked when hired to review historical R&D submissions. However, with the importance of compliance ever present within the rapidly evolving business landscape, it is understandable that more businesses are not confident about shifting away from their status quo.

What we’re hearing from business leaders and CFO’s is that it’s not just about increasing revenue, it’s about increasing resilience and compliance in all areas. Understandably, we see companies approaching any change to the status quo with extra scrutiny and staying safe has become the default stance.

As the economy has been forced to adapt significantly, with the focus on risk mitigation, we wonder what longer term impact will this have on innovation in the UK?

Insights from Stephen Leishman, James Marden and Colin Barr.

Author

Stephen Leishman

Partner - Commercial, Leyton UK

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