Profit & Loss

68% of CFOs Still Expect Net Profits to Rise in 2023

CFO confidence remains high despite cost-control issues, per a Grant Thornton survey.
68% of CFOs Still Expect Net Profits to Rise in 2023
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The first quarter of 2023 introduced an expanding set of challenges for CFOs — bank insolvency issues, a determined Federal Reserve, and escalation of the war in Ukraine. But finance chiefs remain resilient in the face of a whirlwind of external forces on costs, talent, supply chains, and corporate growth strategies. 

New data from Grant Thornton’s 2023 Q1 CFO survey, collected just prior to last month’s banking collapse, showed that not only were more than half (53%) of CFOs optimistic about the economy, but over two-thirds (68%) of CFOs expect their net profits to rise over the remainder of the year. 

Cost-Control Difficulties

Despite cautious optimism, CFOs’ ability to control the costs of business is suffering. Just half (50%) of CFOs said they are confident in their ability to cut costs, dropping nine percentage points from Grant Thornton’s findings of the same question in survey in Q4 of 2022. 

“Many companies are reviewing their contracts and relationships to see where they might have opportunities to reduce costs,” said Sean Denham, national audit growth leader for Grant Thornton. “CFOs are expecting a bumpy ride as the year develops, but they’re buckling in and driving forward with the idea that the road will get smoother later in the year.”

Finance executives report a wide range of areas in which they are trimming allocations, with vendor supplier costs at 44% sitting at the top. Other areas with similar response figures include technology investments, headcount and compensation, and costs of materials. 

According to surveyors, materials costs saw a double-digit rise, compared with six months ago, with 40% of CEOs now identifying it as a top target for cuts. CFOs should anticipate reduction in allocations to raw materials needed for production.

Technology spending also rose as an area for possible cuts, from 33% in Q2 2022 to 43% this quarter. 

ESG Approaches 

Few CFOs have named ESG as a top priority, but that may change going forward. More than a quarter (27%) of CFOs believe ESG disclosures will be a part of their biggest challenge over the next 12 months. That figure doubles 2022 Q3’s total, where only 13% of CFOs said ESG would be a challenge over the same time frame. 

ESG’s impact on decision making is relevant too, data shows. Nearly three quarters (73%) of CFOs said ESG is a fundamental component on decision making. Less than one in 10 (9%) of CFOs told surveyors ESG is not considered at all by their organizations.

“There’s clear research that shows the value of reputation for a publicly traded company is more than its physical and financial assets,” said John Friedman, Grant Thornton’s managing director of ESG and sustainability services.

Experts from Grant Thornton also believe the value of ESG efforts can be gauged through an employee base’s thoughts on the company’s efforts. “If something is important to employees, it’s probably important to some degree to customers and the board, too,” said Jessica Feeley, director of ESG and sustainability at Grant Thornton.

“If you focus on quality and you’re able to move the needle even on one ESG initiative, you can have an impact across all those different groups at once,” Feeley said.

Supply Chain Issues Lighten

According to the surveyors, finance leaders did not rate supply chain as their biggest challenge for the first time since the second quarter of 2022.  

More than half (55%) of CFOs shared that they have confidence in their ability to meet supply chain needs — the highest percentage since Grant Thornton began asking the question in the fourth quarter of 2021.

Although many companies were forced to lay people off, surveyors found that some companies may have cut headcount too quickly. After undervaluing their workforce’s ability to do more with less, some executive teams are playing catch-up filling positions they previously eliminated.

“They need to backfill positions and they can’t find anybody,” said Lisa Heacock, partner of finance transformation for Grant Thornton. “So there’s no single answer as far as human capital spend. It just depends on the industry, the maturity of the organization, and their finance operating model.”