Editor's Note:This article is the third in a series focusing on the pressures exacerbated by the economic slowdown—pressures that are testing even the most experienced CFOs. In thefirst article, CFO Dive detailed the new discussions on the importance of mental health care in the C-suite following the suicide of Bed Bath & Beyond CFO Gustavo Arnal;the second articleexplored how financial executives are coping with the rising possibility of layoffs.

Federal Reserve policymakers once portrayed this bout of inflation as a brief flare-up that would quickly subside. However, scorching price pressures have been searing American businesses for nearly 20 months, with no clear timetable for cooling.

Following the sharp pandemic-induced recession, consumer demand surged; lockdowns and tight labor markets pushed up wage growth; and after Russia's invasion of Ukraine, prices for oil, grains, and other commodities spiked. Among the many causes pushing prices higher, supply chain disruptions were the earliest to raise alarms among economists, including those within the Federal Reserve.

Some indicators—such as theindex compiled by the New York Fed—show that bottlenecks in the flow of goods have begun to ease. But the effects have yet to show up in inflation data: The consumer price index (CPI) rose 7.7% year over year in October.

"Inflation is largely a supply chain problem, and its spread and resolution have taken far longer than expected," Itamar Drechsler, a finance professor at the Wharton School of the University of Pennsylvania, said in an interview. "In normal times, our supply chain problems would be nowhere near this severe." Economists are divided on when the Fed will bring inflation back down to its 2% target, but agree that the smooth flow of goods through supply chains is key to a steady decline in price pressures. "As long as supply chain problems exist, it will be very difficult to get inflation down to 2% or 3%," Drechsler said.

For many CFOs under 50, rapid price increases were a relic of their parents' era, as foreign as sideburns and bell-bottoms. They may have only vaguely heard of how double-digit inflation repeatedly battered American businesses between 1974 and 1981.

High inflation upends CFOs' strategies on price, wages, capital allocation, and other profit determinants, while intensifying tensions with suppliers, customers, employees, or shareholders. CFOs suggest the following four steps to cope with the worst inflation in nearly 40 years—and the recession risks from Fed rate hikes aimed at cooling the economy:

1. Hoard Cash

Amid persistent price pressures and growing recession forecasts, "cash reserves are undoubtedly the top concern for CFOs," said Brian Prantil, a supply chain management expert at Insight Sourcing Group. Jim Morgan, CFO of software company CallRail, said the company faces price pressures across multiple fronts, including supplier negotiations and adjustments to employee compensation and benefits. CallRail provides call tracking and marketing analytics software to more than 34,000 small and medium-sized businesses.

"Most finance people I talk to are taking a very conservative and cautious approach for next year," Morgan said in an interview. "Our plans are more conservative than usual." Morgan said CallRail is relatively better positioned to weather a recession because of its long-standing conservative cash strategy. "We've never burned cash," he said. "We don't have to think about raising capital in 12 or 18 months." Currently, CallRail is balancing attracting talent, identifying M&A targets, and investing in software innovation. "We often discuss 'how best to use the profits we generate, how to look for opportunities,'" he said.

Nupur Sadiwala, CFO of shopping savings app Fetch Rewards, also said the company has a strong urge to make full use of its cash. "Cash preservation is the top priority," she said in an interview. "Once you enter a recessionary environment, raising capital can become more difficult." Fetch Rewards completed a $240 million Series D round this year before recession forecasts piled up. Even so, the recession outlook has made it more focused on funding priorities. "It helps the company have an extra layer of discipline," and "makes every investment more critical," she said.

2. Boost Cost-Cutting Collaboration

Prantil said that with high inflation and clogged supply chains, CFOs can typically improve cash flow by working closely with their company's procurement team to realign prices and input cost increases. Prantil noted in the interview that by pushing to review purchase volumes or technical specifications, CFOs can often cut costs by up to 15%. "You should question all purchases, asking 'Why are we buying this? Can we buy a substitute? Is there too much sitting on the shelf?'" Prantil said. "When you look at existing purchases from a different perspective, you find a wealth of opportunities." A rigorous review of outsourced services can also yield similar savings. For example, many companies that allow employees to work remotely have cut costs by reducing cleaning services to fewer than five days a week.

"CFOs often view procurement staff as supplier identifiers, not supplier optimizers," Prantil said. "They should view procurement professionals as strategic partners." At CallRail, C-suite executives foster collaboration by encouraging employees at all levels to "mind the business," Morgan said, citing the company's long-standing motto. "We've doubled down on being business partners," he said. "Ideally, I want everyone to think like the finance team," Morgan said. "That way, the right framework is everywhere without finance and accounting having to be involved in every decision." CallRail emphasizes at employee meetings that "we are all business owners," and supports this principle through an equity-sharing plan. "Promoting this idea gives you much more leverage than just a few people saying, 'Look, you're spending too much, we need to cut,'" he said.

Morgan noted that a unified mindset is especially important as CallRail adapts to inflationary turmoil, because most employees have never experienced rapid price increases. At monday.com, which offers project management software, executives emphasize to employees at monthly meetings that amid high inflation, they need to discard long-held assumptions about the market and the broader economy. "We explain inflation and say, 'Guys, this is a completely different environment globally,'" CFO Eliran Glazer said in an interview at the company's Tel Aviv headquarters. "People don't even know what 'inflation' means!" he said. "So it's absolutely—educate, educate, re-educate."

3. Stay Agile

CFOs witnessed the value of agility firsthand in 2020—when the sudden outbreak of COVID-19 forced lockdowns, triggered a "cash grab" across industries, and pushed the U.S. economy into its worst recession on record. "Over the past few years, CFOs have learned that flexibility is key, and uncertainty demands flexibility and a steady hand in choppy waters," Morgan said. CallRail has invested heavily in technology that tracks customer platform usage nearly in real time. "Overnight data used to be sufficient," he said. "Today, in an analytics world, if we can get fresh data within hours, we can probably satisfy the rest of the organization."

For monday.com, agility is crucial in hedging against currency market volatility, Glazer said. The company generates 30% of its revenue from the UK, Australia, the eurozone, and other regions outside the U.S. Adapting to a strong dollar is both a challenge and an opportunity, he said. The dollar index—which tracks the greenback against six major currencies—has surged more than 12% this year. Currency fluctuations can cost monday.com up to 3% in revenue headwinds, Glazer said. "Exchange losses are not business or operating expenses, so you don't want them dominating your P&L frequently." Despite the challenges, market turmoil and the Fed's efforts to curb inflation have also created opportunities for monday.com. For example, as the Fed raised the federal funds rate from near zero to a range of 3.75%-4% this year, U.S. Treasury yields rose. Seeking low-risk returns, Glazer has invested part of monday.com's $830 million in available cash in U.S. Treasuries.

4. Don't Panic

Financial executives said that by setting realistic expectations, CFOs can help employees cope with inflationary pressures vented by shareholders, suppliers, and other stakeholders. Beyond inflation, risks such as the war in Ukraine and slowing growth in China cloud the outlook. "As a CFO, you have to sit in the front row—you have to lead proactively, not worry," Glazer said. As headwinds shift, monday.com regularly updates its range of forecast scenarios for the coming months and adjusts its planning. He leads a 50-person team each month in reviewing factors such as cash flow, currency fluctuations, revenue, and expenses. He is wary of hasty decisions to cut jobs or reduce spending on innovation and marketing. Glazer expects inflation may not fall below 5% over the next three years, but warns against narrowly focusing on price pressures. "Don't let inflation dictate the way you look at the numbers."