CFOs, who are often aiming to be more strategic and involved in the decision-making process within the contemporary corporate finance environment, also need to be sure of the company’s ability to navigate uncertainty caused by factors out of the control of the company. Within budgeting and forecasting across the business, strategies must be flexible for the uncontrollable — things like global and domestic politics that impact economies.
In Grant Thornton’s recently published Q3 2024 CFO survey, more than three quarters (79%) of CFOs said they expect growth in net profits over the next 12 months. Although this figure is a 10-quarter high, CFO confidence is also coming at a four-quarter low. Confidence to meet goals for increased demand over the next twelve months fell 12 points to 51%.
Confidence and cost optimization
Confidence among CFOs continues to fall across key business areas, with only 53% expressing confidence in achieving supply chain objectives, while 49% felt secure about meeting labor demands. The outlook on cost control goals dipped to 42%, and only 45% of CFOs were confident in hitting growth targets. Despite these declines, cost optimization — a priority at a 10-quarter high — has emerged as the primary focus for 64% of CFOs.
As confidence around the business dwindles but expectations for a rise in net profits grow, external economic factors like rising inflation and national debt should also be considered as contributing to these expectations. If costs continue to rise, and businesses respond by raising their prices, the cost to provide the same services will continue to go up. With this, it’s no surprise that a drop in confidence is taking place — although a rise in net profits may occur, neither the business nor the market it operates in experiences any considerable growth.
In a statement within the report, Paul Melville, national managing principal of CFO Advisory for Grant Thornton Advisors, said finance leaders have reasons to be confident despite the dropping figures.
“Finance leaders’ belief in their ability to drive profits at their organizations remains unshaken, even as their confidence in other key fundamentals tumbled in an unsettled environment,” said Melville. “CFOs believe they can push the right buttons to help their organizations thrive in the long term.”
Marketing, sales, technology and human capital
Through strategies like creating actionable data systems or getting involved in marketing itself, the value collaboration between finance and marketing can bring to brand development is evident in a variety of industries. Presumably because of the success of companies that have mastered this partnership, senior finance leaders are investing in sales and marketing at levels not seen in the 15 quarters since Grant Thornton began conducting this survey. Over half (56%) anticipate a rise in sales and marketing expenses over the next year. Less than one in 10 (7%) expect a decrease.
Nearly two-thirds (66%) of finance leaders also plan to boost their spending on IT and digital transformation in the coming year, marking another lengthy high of 15 quarters. This trend highlights the growing emphasis on digital initiatives across finance departments.
Though cost optimization is a focus for CFOs, growth in these areas comes with costs. To alleviate some of these costs, CFOs may turn to cutting some of their human capital expenses. Forty-two percent said they’ve identified areas like employee headcount and compensation levels. However, large-scale layoffs may be unlikely in the short term, as workforce rationalization was only a focus of 27% of CFOs, a substantial 20-point drop from Q2. In an all-time survey high, 14% of CFOs said they have no plans to cut costs whatsoever.
Political impacts
Sixty-one percent of finance leaders believe the coming U.S. election could trigger a shift in their business strategy. While respondents cited the election’s potential effects on the overall economy as the most significant factor, its impact on tax, regulatory and trade policies was seen as less influential. While the overall economy was the top effect of the election for CFOs (45%), other areas of interest were tax policy (23%), regulatory policy (22%) and trade policy (10%).
As a result, CFOs are divided on investment strategies ahead of the election. Nearly a third (31%) are fast-tracking certain investments in anticipation, while 23% are delaying decisions until after the election. Meanwhile, 46% said their investment plans remain unaffected by the election, a notion Grant Thornton leadership believes is the right approach.
“You’re still going to invest in AI to drive improvements through technology,” Melville said in the report. “You’re still going to make sure your cybersecurity protections are strong. The business fundamentals like efficiency in the finance function and the basics for growing your business aren’t going to change regardless of who is in the White House or the government.”
Grant Thornton’s Q3 2024 CFO survey had approximately 230 responses from senior finance leaders in private, public, government, nonprofit and private equity sectors.
