Survey: CFOs Conservative on Spending, Bullish on Business

Blog Credit: Art Wittmann, April 18, 2022 (Survey: CFOs Conservative on Spending, Bullish on Business | NetSuite)

In short:

  • 500 executives and managers from companies with $250 million or less in annual revenue answered our survey.
  • CFOs and peer executives agree: Payroll spending is a lower priority, despite the labor shortage.
  • CFOs and the finance team get high marks for managing through the past few years — particularly for acquiring needed financing.

A little disagreement is healthy when it comes to business leadership. That’s been a common point of view for CFOs for, perhaps, as long as there have been CFOs. Bearing responsibility for cash flow and risk management leads finance chiefs to look at new spending differently from other company leaders. They may also have a different take on solving business problems — like, say, difficulty hiring during a national talent shortage.

That contrast has been evident throughout the pandemic and, according to our most recent survey, continues now.

Our quarterly survey of 500 mid-market business leaders compares the outlook, concerns and priorities of top finance executives with their peer executives and with managers inside and outside of the finance department. Along with business priorities, the NetSuite CFO & Business Leader Spring 2022 Outlook Survey also asked CFOs about how the job has changed over the past three years, and where they gained new proficiencies. We asked their peer executives to similarly rate their CFOs.

Regarding the current business outlook, managers and executives alike are optimistic about their company’s prospects over the next two years. Our survey was fielded in the last two weeks of February, so that bright outlook takes into account Russia’s hostile rhetoric toward Ukraine and its invasion, which started on February 20. Then, West Texas Intermediate crude was trading for about $85 per barrel, and prices were climbing steadily, causing general anxiety about inflation in general and gas prices in particular.

Of course, executives and managers then were also well aware of the talent shortage and the stresses on supply chains. They knew that inflation wouldn’t be transitory, like the Fed had hoped. They may have been aware of signs of recession, like short- and long-term bond yields flattening and threatening to invert — a usually correct indicator of an impending recession.

So, with all that top of mind, Why would the business outlook be so positive?

It’s all about the bright side: The Omicron surge was ending and across the country most COVID-19 related restrictions were being lifted, which feels good to all of us. But most important of all, consumers are still spending, even as wages are not keeping up with inflation. They’re also going back to work. January, February and March all saw hiring numbers at or above economists’ expectations. So, even with all the challenges and unknowns, respondents report that they see good growth in revenue and earnings potential for the foreseeable future.

Consensus on a positive outlook does not imply consensus elsewhere, however.

For example, respondents’ concerns over external factors varied significantly among our four cohorts. We offered nine external factors that are commonly cited as worrisome for businesses and asked survey takers to rank them from most to least concerning. Both executives and finance managers put COVID-19 at the top of the list, while other managers ranked it third to last. Inflation and the talent shortage topped the list for managers outside of finance

The day-to-day frustrations of managers come through in this response as well as others.

The top priorities for CFOs over the next 18 months are to control spending, improve data analytics and address the labor shortage. Other executives prioritize strengthening supply chains, managing costs and improving use of technology. In contrast, managers outside the finance department are not fans of cost management right now — the fewest ranked it as a top priority. Their focus is on supply chain improvements and better using technology.

Non-finance executives are not fans of managing the labor shortage, with just one-third making it a top priority.

Attitudes about the labor shortage are rather nuanced. CFOs want to alleviate their labor issues, but not by throwing cash at the problem. On average, CFOs want to hold costs flat on labor and, while 30% say they want to increase spending, an additional 31% expect to hold it flat, while 38% plan to cut payroll over the next year.

Most cutters are from companies with more than 1,000 employees. There, nearly half expect to trim payroll. Perhaps unsurprisingly, it’s retail that’s taking the biggest hit: 73% anticipate cuts in payroll, with nearly a quarter saying they’ll slash by 10% or more.

A common line of thinking involves using technology as a way to reduce labor costs. At least in retail, that’s not happening now — though it may already have happened with existing ecommerce investments. Just 27% of retailers expect to spend more on technology, and the majority expect to hold tech spending flat. Sectors planning to increase spending the most include finance, software and professional services; in each, majorities saying they’ll spend more on tech.

Throughout our survey, CFOs and the finance team earned high marks for their performance since 2019. Peer executives in particular give CFOs props for their skill in managing financing through that period. We asked about overall proficiency as well as improvements in the CFO’s performance over the past few years, and below is a chart showing where finance chiefs would like to continue to enhance their skills along with the areas where their executive peers think the CFO should improve.

The two standout areas of disagreement? Financing, where 50% more CFOs think they should improve versus their peers, and managing the finance team, where peers are more than twice as likely to say the CFO could do better.

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