More than half (58%) of finance executives said cost optimization is their biggest concern over the next six months, according to recent data compiled from 246 CFOs by Grant Thornton.
With workforce rationalization and liquidity also being major concerns for those surveyed (40% and 37%, respectively), the data shows finance executives are most concerned about rising costs heading into the new year.
A significant number of concerns are due to strategizing ways to cut costs, survey results show. Nearly a third (32%) of executives said they would potentially introduce layoffs in cost-cutting efforts. External professional consulting support and fees (42%) and technology investments (41%) were also named as potential places to trim.
The arguably overlooked area of cybersecurity was a concern for executives responding to Grant Thornton's third-quarter survey, with more than a third (34%) naming it among their top three areas of concern in the first half of 2023. Also high on their list of concerns was access to capital (29%), stakeholder communications (24%), and divestitures (23%).
Along with workforce and operations cuts, travel budgets may also be targeted in cost-cutting efforts. Despite events being heavily covered in corporate finance and tech, surveyors found that over a third (38%) of executives expect travel expenses to decrease in 2023. According to Grant Thornton, that’s the highest percentage since the first quarter of 2021.
“The companies I’m talking to all are focused on cost reductions,” said Sean Denham, national audit growth leader for Grant Thornton. “Whether it’s through headcount or other means, that’s what they’re focused on. Usually, when people are focused on cost reductions, it’s because they don’t have a positive outlook on the future.”
Executives Surprisingly Optimistic
In a market that has shown overwhelming rates of economic concern and pessimism going into 2023, a majority of CFOs (64%) are confident they will achieve some growth. Despite a 5% drop in optimism based upon previous data gathered by Grant Thornton, CFO growth forecasting and optimism remains high.
Of those surveyed, 42% of CFOs expect growth of 6% or more in 2023. Nearly another quarter (22%) of respondents said they also expect growth up to 5% within the same timeframe.
“The sentiment is that M&A volumes are down year-over-year,” said Christopher Schenkenberg, national managing partner at Grant Thornton. “And while rising interest rates certainly affect the cost of capital and investment models, recent decreases in valuations and multiples affect them positively in some industries.”
Of executives who expect contraction over the next twelve months, expected reductions aren’t overly substantial. Nearly a quarter (23%) of CFOs expecting contractions predict more than 5% reduction rates. Nearly half (47%) of that group expect contraction rates between 5% and 10%.
Supply Chain Challenges, Again
Despite a wide variety of options, 41% of CFOs said their supply chains would be a challenge over the next six months. (See chart, below.) According to surveyors, rising interest rates accompanied by overstocked warehouses have created a problem that goes back to the pandemic.
“When the cost of capital was close to zero, they could put all the inventory they [wanted] in their warehouses,” said Denham. “Now that interest rates are going up, they have to decide whether to increase inventory because of potential supply chain issues. The cost of that is going to be a factor.”
While supply chain kinks have been loosening, finance executives' level of concern about supply chains is back at recent highs, according to Grant Thornton, matching the level from the Q4 2021 CFO survey.
Other challenges anticipated by CFOs in the next six months include liquidity (31%), remote workforces (30%), and cybersecurity risks (30%). Areas of concern previously, like compliance and ESG, were at the bottom of the list, at 19% and 13%, respectively.