A Q1 Grant Thornton CFO Survey highlights a continual, worrisome decline in optimism among CFOs. This comes as CFOs are scrambling to find ways to combat inflation that has been lingering since last year.
Since the last survey in September, 2021, the number of respondents who are optimistic about the US economy has fallen by a full 20 percentage points and is now below the 50% mark at 49%. Not surprisingly, increasing costs of goods and services was the number one reason for a negative outlook as a whopping 80% of CFOs responded that this was their main concern. Supply chain challenges, the war in Ukraine, and inflation were also big factors in the reduced optimism.
Increasing costs of goods and services are the #1 concern
CFOs clearly hold this area as most concerning, being that increasing costs affects everything and everyone- from payrolls to transportation and raw materials. No matter what the organization does, things will cost more and it will eat into their profits.
As a response to this, exactly 50% of the respondents said they plan on raising prices. Out of those planning to raise prices, 82% expect to increase it by 5% or more, while 28% said they expect to raise it by more than 10%.
As expected of inflation, 46% of respondents think that it will have a negative impact on their 2022 profits, but interestingly enough, 35% expect inflation to have a positive impact on their profits (perhaps by using it as a justified reason to raise prices or take or other actions that can benefit their revenue).
The multiple rate hikes from the Federal Reserve that have occurred this year drew plenty of attention, as they contained great hope that they would help reduce inflation. However, 76% of CFOs expressed concern that these rate hikes would lead to a recession. In fact, this concern seems to be coming true, while inflation is hardly budging.
Raising prices and increased compensation were the two most popular ways to mitigate inflation according to the survey, but there were a variety of approaches that came after these as well, as inflation affects each company in different manners. Companies that heavily rely on transportation or energy need to address those rising costs, while service-heavy industries need to focus on employee retention and potentially raising salaries. As an example of different responses, 38% of CFOs are changing their debt structure as a response to inflation.
Supply chain and cybersecurity can’t be ignored
Inflation is the broader problem affecting all aspects of the market, but supply chain disruptions and cybersecurity are on the top of CFOs’ minds as well.
Supply chain troubles (cited by 35% of respondents) are being fueled by lingering pandemic market disruptions (mostly in China), employee shortages, and the war in Ukraine. The hope that these issues would ,magically end when the pandemic would fizzle out looks less and less likely.
Surprisingly, cybersecurity ranked even higher than supply chain issues, as 40% of CFOs cited this as a concern. The ever present threat of cyber attacks that can ruin companies and careers overnight are becoming more and more common and this is troubling many companies.
Investing in employees
The Q1 survey also highlighted another problem that is making CFOs’ lives difficult: The Great Resignation. More than half (57%) said recruiting and talent retention is their primary HR challenge, and 48% expect their compensation and benefits to increase. It’s no surprise that nearly half (45%) plan to spend more on recruiting. All of this is not only taking attention away from forecasting, budgeting, and other CFO activities, but it’s directly harming the companies’ output and revenue.
In regards to returning to the office, something that is on executives’ minds a lot recently, 74% of CFOs believe that hybrid and remote work are here to stay and even want to improve that model for the long run.
As companies’ optimism falls, the survey revealed a slow-down in investment plans for environmental, social, and governance (ESG) initiatives as well as less of a focus on diversity, equity and inclusion (DEI). Only 31% and 34% of CFOs plan to increase their investments in these initiatives respectively. As optimism falls, we see organizations become less and less willing to increase spending in places that don’t have to do with short term results or immediate company needs.
Courses of Action
As inflation continues for a lot longer than many expected, economic optimism among CFOs continues to fall. Each organization is scrambling to deal with it in ways that they feel best, but there are proactive measures that CFOs can take in order to mitigate today’s challenges and concerns:
Cybersecurity- Since 40% of CFOs ranked this as a high concern, being a leader in increasing cybersecurity measures would be a great solution for any CFO to take. These 8 cybersecurity measures are a good first step, while exploring the option of adding cybersecurity tools can give CFOs and organizational leaders the peace of mind they need to focus on other things.
Supply chain troubles- While the global supply chain itself isn’t something the average CFO has control over (unless you’re an executive in a major manufacturing or transportation company), gaining deeper insights into forecasting and scenario planning is a very important action that CFOs can take to be most prepared for future disruptions. FP&A software tools are a great solution to implement in order to do just that, and gaining a deeper understanding of industry specific trends is also increasingly important for finance leaders.
Employees- A company can’t run without employees and the difficulty of hiring and retaining talent is putting additional pressure on executives. While raising salaries and benefits is the obvious answer for companies that can afford to do so, providing a flexible and remote work environment is actually more important than higher pay for those looking for new jobs according to a Bankrate survey.
Each CFO and company has different things they are concerned about, but most of them lead back to one category, inflation and all of its effects. CFOs need to be proactive in combatting these issues in order to lead their company to long term effective results.
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