Financial Planning Canada

1. In your opinion, how has the finance industry evolved over the years? What are some of the advantages of the current technological evolution?

The greatest evolution in the finance industry is the merging of technology with finance and accounting. I probably would not have enjoyed this career as much if it was still the days of paper and spreadsheets. This evolution accelerated during the last two years of the pandemic and has forced many companies that were previously moving too slow, to finally embrace all this era has to offer. My company, along with many others, has moved to a hybrid-work schedule and we have become even more efficient with our work, thanks to a working environment that is totally digitalized. I remember when we remodeled our current offices and were concerned about not having enough filing cabinets. Fast forward to today, those filing cabinets are pretty much empty.  Without a doubt, our finance team is doing more work, and more accurate work, than ever before.

 2. What according to you are some of the challenges plaguing the finance industry and how can they be effectively mitigated?

Working with a variety of different software partners - such as one for accounting, one for payroll, one for credit cards processing, etc. - has moved our focus to system integrations and the constant needs to keep these connections working. Eventually, we are hoping the main software firms will handle all of these functions with one system. On the plus side, there are so many good new companies and software solutions to evaluate, and it truly is an exciting time. For now, we hire team members that are technology savvy as a primary skill and work with them to develop their finance skills.

3. Which are a few technological trends influencing the finance industry today? What are some of the best practices businesses should adopt today to steer ahead of competitors?

We recently switch to a new expenses management software partner called "Ramp". This company provides the expense management software for free, plus provides both physical and virtual purchasing cards that pay an industry leading rebate. They also have real-time synchronizing of transactions and text messaging notifications, along with easy integration to our accounting system. This is good example of two separate tools - purchasing cards and expense management applications - into a single product and we are thrilled with this time saving switch. We look forward to more solutions in this manner, helping us reduce the number of separate software partners.

4. Do you have any advice for industry veterans or budding entrepreneurs from the finance industry?

I recommend we all fully embrace digitization in the finance industry. If you have any paper in your office, you are still behind. For budding entrepreneurs, please know we are struggling with too many software partners and would like more one-stop providers.

In the high-energy world of creative agencies, the role of Finance has shifted from the back office to the heart of the business. As a finance leader with extensive experience in the agency space most notably through the merger and integration of major firms under private equity ownership I have found that the most vital skill is the “zoom”. This is the ability to shift seamlessly between the microscopic operational needs of creative teams and the macroscopic strategic goals of executive leadership and private equity investors.

Micro-Strategy: Empowering Creativity through Integrated Partnering

In an agency environment, supporting “creative ambition” is not about saying “no” to big ideas; it is about providing the fiscal clarity that allows those ideas to flourish within a sustainable framework. Rather than viewing the budget as a barrier, I frame it as a roadmap for innovation.

By establishing standard operating procedures for budgeting and forecasting, I provide creative and operational teams with the visibility they need to make informed decisions. In my experience, implementing advanced cost allocation models and activity-based costing methodologies increases transparency. When a Creative Director understands the precise resource utilization behind their projects, they gain the confidence to reallocate funds toward high-impact creative work without compromising the agency’s overall financial health. This partnership transforms Finance from a restrictive force into a strategic ally that protects the agency’s “creative runway.”

Translating the Abstract: Clear Guidance for Creative Stakeholders

Data is only as valuable as the decisions it inspires. For non-financial stakeholders, a dense financial report can often feel disconnected from the daily creative process. To bridge this gap, I act as a translator, turning complex data into intuitive, actionable guidance.

My focus is on facilitating a deep understanding of the business drivers that creative teams can actually influence. While we still monitor the abstract line items that define the budget, the real value comes from the collaboration we engage in to discuss operational levers. We look closely at project burn rates, capacity planning, and resource planning to ensure that the creative vision is supported by operational reality. By focusing on client retention and expense management, I help department leaders see how their bottomline performance rather than just topline revenue is a direct reflection of their operational success. This approach ensures that every team member, from account managers to designers, understands how managing their resources contributes to the agency’s long-term EBITDA goals.

"Supporting creative ambition is not about saying ‘no’ to big ideas, it is about providing the fiscal clarity that allows those ideas to flourish within a sustainable framework."

Macro-Strategy: The Private Equity Perspective

When “zooming out” to the macro level, the focus shifts to the Private Equity firm and the Board of Directors. In a PE-backed environment, these stakeholders are laser-focused on scalability, EBITDA optimization and risk mitigation to drive enterprise value.

At this level, my role is to provide the high-impact insights that drive confident, agile decision-making:

• Agile Forecasting:  Integrating rolling forecast models that incorporate multiple scenarios allows the board to visualize the agency’s resilience and pivot quickly in a volatile market.

• Operational Synergy:  Overseeing the seamless consolidation of software systems and financial infrastructures during mergers ensures that the organization remains cohesive and efficient as it scales.

• Strategic Human Capital Management:  Providing data-driven insights into compensation and talent allocation supports the board’s efforts to optimize the agency’s most valuable asset its people while maintaining margin discipline.

Balancing the Now with the Next

The ultimate challenge of a finance leader in a private equity portfolio company is balancing short-term performance with long-term growth. My philosophy is that short-term fiscal discipline is the foundation that funds future innovation. By identifying operational inefficiencies and implementing strategic cost management, we protect current margins to ensure the agency has the capital to invest in the talent and creative ventures that will drive the eventual exit or next stage of growth.

Whether I am diving into the micro-details of a department’s cost allocation or preparing a long-range strategic plan for the board, my mission remains the same: to ensure that financial strategy is the engine that drives creative ambition, not the anchor that holds it back.

The manufacturing environment has encountered a tremendous amount of change in recent years. Uncertainty in supply and rising input costs are causing manufacturers to have to act fast and think outside the box. Terms like “continuous improvement” and “operational excellence” are being heard more often. Regular repairs and maintenance spend just isn’t cutting it anymore and more robust preventative maintenance programs and capital expenditures are needed. These are necessary not only to improve efficiencies and reduce materials usage, but also to reduce labor requirements. We’re hearing all over Canada about labor shortages. In my experience, I am seeing manufacturers getting hit hard in the labor market. Typical manufacturing jobs are not where people want to work anymore. The days of entire families working in a production line together are dwindling. When older workers retire, there isn’t a lineup of younger people waiting at the door to take their place. The jobs aren’t glamorous, and they definitely aren’t easy.

“Being able to analyze and trace your costs enables you to price your products accordingly and gives you a greater chance of getting a customer’s business.”

Manufacturers need to know, in real time, what their costs are in order to be able to manage them adequately. Cost accounting and cost analysis is even more important than in the past. No matter what costing method you use (standard costing, activity-based costing, etc.), cost accounting systems are key to helping you improve your company’s performance. Being able to analyze and trace your costs enables you to price your products accordingly and gives you a greater chance of getting a customer’s business. Alternatively, if you don’t accurately analyze and trace your costs, you could end up pricing your products incorrectly and eating into your margins. This is where cost accountants come into play. Cost accountants can gather all of your purchases and break them down into the important buckets like direct materials, direct labor, variable costs, and fixed costs. From there, they report and analyze those costs, which can lead to improvement of processes and efficiencies, which enable the business to reduce their production costs. An example of this could be in your maintenance costs. Maybe you are constantly repairing an old piece of equipment. When times are tough, companies can sometimes get caught up in cutting costs and only want to spend the minimum amount possible at one time. It’s easy to lose sight of the spend when it’s coming in dribs and drabs over time, so this can often quickly add up and cost you more than it would have to replace it. It's important to study spending trends and identify areas where this might be happening to ensure you’re not throwing good money after bad. You want to ensure that you are making the most profitable decision for the company long term and not just today.

I read a quote once that stuck with me. It said, “There’s a reason the rearview mirror is so small, and the windshield is so big. Where you are headed is much more important than where you’ve been”. If you want to be in business for the long haul, forecasting is a very important exercise. You need to be able to articulate where you want to go so that your teams make decisions to support that vision. Cost Accounting and analysis is not just important to explain what happened yesterday, it’s also an important part of predicting where you’re planning to end up tomorrow. Understanding your costs and identifying trends will provide you with key information to predict your costs going forward. You can use this data to create what if scenarios and determine the impact that input pricing or production volume changes can have on your business and allow you to better prepare for variability in your business. The results of these analyses will tell you whether your vision is viable or whether you will need to adjust any components of your business to be able to achieve your goals.

Introduction

In the ever-shifting landscape of commercial real estate and financial markets, paying attention to critical benchmarks is more important than ever, especially in uncertain markets like this. Here at the Phoenix Capital Markets Team at Transwestern, we're always on the lookout for those telltale signs that we can use in guiding our clients in making the right moves when it comes to projecting the future of their underwriting. We pride ourselves on being able to spot leading indicators that pave the way for success. In this article, we will embark on a journey through the key elements that shape this industry and their potential ramifications. While the future remains elusive, delving into these factors is essential for understanding the ever-changing commercial real estate market.

From Sidelines to Stability: Big Money Waits on the Sidelines While the Economy Stabilizes to a New Norm

A staggering $811 billion of global equity lies on the sidelines, akin to dry powder, patiently anticipating a great financial crisis like correction in commercial real estate. Institutional capital, in particular, waits for the right moment to pounce on investment opportunities that may arise.

After weathering tumultuous supply chain disruptions, the industry is finally witnessing subsidence. Producer costs have reached a state of equilibrium, and in some cases, even decreased. This newfound stability has had an outsized effect on curbing inflation, currently resting at a modest 3 percent—the lowest level observed in over two years. This decrease bodes well for the commercial real estate market as well as the consumer.

Unattractive interest rates have led property owners to adopt a wait-and-see approach. They are hesitant to sell assets when they have secured favorable loan rates, thereby avoiding exchanging into properties with higher interest rates. This has virtually extinguished the 1031 market. This phenomenon, prevalent in both residential and commercial real estate, has contributed to decreased velocity within the industry.

The US economy has had an outsized impact in the big medical and big government industries, constituting roughly 53 percent of the US economy. Unaffected by interest rate sensitivity, these sectors remain robust, helping to foster a low unemployment rate of 3.6 percent as of June 2023.

The Federal Reserve's Misaligned Projection

With forward looking assumptions indicating a future rate of 5.25 percent-5.5 percent for the Federal Reserve's funds rate by the end of 2023, skepticism arises regarding their alignment with the current economic climate. Inflation sits at its lowest point in two years, while unemployment remains impressively low. This incongruity challenges the Fed's forecasting accuracy and suggests that the current conditions warrant cautious optimism rather than hastened interest rate increases

"While we may not possess a crystal ball or claim to be economists, we can navigate these shifting tides with expertise and resilience, seizing opportunities as they arise."

Red Flags: Speculative Office Development and Loan Maturities

As the economy gradually stabilizes, certain factors will inevitably impact the commercial real estate sector. Two primary concerns loom on the horizon for the office sector—the risks associated with speculative office development and the upcoming maturities of office loans. In 2023, a staggering $140 billion of office debt will come due, potentially setting the stage for an intricate dance between borrowers and lenders. This ticking time bomb demands careful attention from banks across the country.

An intriguing disconnect emerges as job growth surges beyond 2019 levels while demand for office space dwindles. Traditionally, these two metrics have exhibited a close correlation. However, the current deviation raises an important question: will the work-from-home model become the new norm or will office space demand eventually revert to its previous levels? This uncertainty presents a significant challenge for lenders and property owners alike.

Although opinions may differ, we personally believe a hybrid work-from-home model is here to stay. Remote work appeals to employees, attracting a wider talent pool and enabling companies to allocate freed-up capital toward enhancing their products and services. While the specific circumstances of each company determine the degree to which they adopt remote work or hybrid models, the trajectory points toward an increasing number of firms embracing these alternatives, thereby further impacting the demand for office spaces. Also, real estate is most companies' second biggest liability only behind payroll - this model frees up capital for businesses to pursue other places to place capital.

Multifamily Development and Industrial Speculation

Multifamily development has experienced a notable upswing across the U.S. Commercial real estate debt totaling $4.4 trillion looms large, with half of this sum tied to multifamily properties. Additionally, the surge of speculative industrial property development, combined with the global surge in e-commerce and the US government's emphasis on domestic manufacturing, alleviates concerns regarding their impact.

Conclusion

As experts in the real estate field, we acknowledge that the commercial real estate market is subject to the influence of multifaceted factors. However, forecasting the precise outcomes of these factors remains an elusive endeavor. It is essential to remain vigilant and adaptable, closely monitoring the unfolding trends within this dynamic landscape. While we may not possess a crystal ball or claim to be economists, we can navigate these shifting tides with expertise and resilience, seizing opportunities as they arise.

While a US recession may prove to be insignificant or likely avoided entirely, the geopolitical outlook inspires caution, and companies engaged in global trade would do well to take a closer look at their financial supply chains to ensure they’re well-equipped to deal with the impact of growing trade tensions.

The majority of economists believe that the US will avoid a recession. Though there are signs of better-than-expected GDP growth, a surprisingly strong job market, and a healthy level of consumer spending, the economy is still reeling from the consequences of successive interest rate hikes and stick-high inflation.

Against a backdrop of global macroeconomic uncertainty, especially considering geopolitical tensions and the possibility of material shifts in trade policies with an unprecedented number of elections this year including US, the outlook presents a worrying scenario for companies.  Corporations face the challenge of higher working capital and greater risk mitigation needs, while simultaneously striving to strengthen their supply chains to unprecedented levels of resilience.

While a 2024 downturn is unlike. There is consensus that the supply chains are shifting, and planning and preparation will be key in establishing a more resilient and diversified supplier base to navigate any ‘known unknowns.’

The good news is that companies today have more time to do so than in prior years of crisis, such as in 2008 when the events were fast and tumultuous, surprising many companies and leading to a rushed implementation of strategies and solutions to mitigate the impact.

Given the volatile situation today and lessons learned during the financial crisis and pandemic era, it is prudent that companies act now to gear up for the impact of a period of disruption on their supply chains. Regardless of whether or not we enter a recession, there is a consensus that credit markets will continue to tighten, which is particularly concerning for small and medium-sized enterprises (SMEs), and in turn the supply chains to which they provide vital inputs.

Trade Finance Matters

During the 2008 financial crisis, large investment-grade companies came to the aid of their suppliers by issuing letters of credit, providing down payments on purchase orders, and extending various other kinds of working capital support to sustain their global supply networks.

Although some of these measures were far from ideal from a treasury management perspective, they helped to accelerate the importance and implementation of trade finance solutions. According to the International Monetary Fund, the share of world trade supported by bank-intermediated trade finance increased during the 2008 downturn.

As has been proven time and time again, in times of crisis, trade finance emerges as the lifeblood of international trade. It’s a countercyclical product with a range of solutions, such as supply chain finance, which can transfer credit risk from smaller businesses to larger, well-established companies, helping to shore up resilience right across the supply chain ecosystem.

"Given the volatile situation today and lessons learned during the financial crisis and pandemic era, it is prudent that companies act now to gear up for the impact of a period of disruption on their supply chains."

Where supply networks need to be reconfigured and new suppliers introduced, trade and supply chain finance instruments can help companies manage the increased risks of less established relationships.

Lenny Floria, a senior treasury manager at Nokia USA, shares that Nokia USA’s trade finance banking relationships were key in supporting the company’s working capital metrics during the financial crisis.

To boost the resilience of supply chains, large buyer companies can implement or expand supply chain finance programs to improve the availability and cost of funding throughout their networks and ensure the stability of strategic suppliers. Likewise, suppliers–often SMEs–can engage with their large buyers about the prospects of joining an existing supply chain finance program, or leveraging alternative funding options, such as receivables products.

Working proactively with trade finance specialists, treasury teams within companies of all sizes can identify the appropriate financing tools to enable them to withstand the current economic scenario and ensure the agility and sustainability of their supply chains. 

Given that economic uncertainty and higher financing costs are projected to continue, now is the time for companies to be reassessing their supply chains and their trade finance lines, and making sure that they have strong, reputable trade finance banks by their side. A proactive approach will go a long way to preventing undesirable working capital issues and emerging well-equipped to scale during expansionary periods.

While some businesses already have a financing and liquidity plan in place for weathering the storm, those that do not tend to not have taken any pre-emptive measures for bolstering their supply chains. For example, for several US companies engaging in trade with the Middle East, Africa, and Asia, solutions often fall short in terms of their support to suppliers in those dynamic markets.

ESG Objectives

As companies prepare to navigate forthcoming challenges and position themselves for success, their goals are also turning toward achieving important sustainability-related objectives within their supply chains. For large corporates, this shift could include rewarding suppliers based on environmental, social, and governance (ESG) criteria.

For many years, Standard Chartered has been working with companies to develop supply chain programs that provide tangible benefits to those who deliver on their ESG commitments.

The Bank’s enhanced partnership with US clothing company PVH Corp on a sustainability-linked supplier finance program is a recent example of a solution that is helping to drive suppliers’ environmental and social ambitions across the supply network.

Under the facility, suppliers to PVH Corp will get access to discounted financing if their day-to-day operations meet performance standards linked to environmental targets and a series of social elements, including a healthy and safe working environment, as well as employment issues, such as eradicating forced labor, child labor, harassment, and abuse.

As is demonstrated in this facility, and across the spectrum of the Bank’s suite of solutions, trade finance is a powerful tool that can be used to engage and incentivize companies across supply chains. It can be harnessed not only to offer working capital improvements but also to foster sustainable practices.

With careful planning, suitable financial instruments, and the right partners, companies can ensure they’re doing everything in their power to mitigate potential risks and emerge stronger in the face of economic uncertainty.