With odds improving that the economy will escape falling into a recession in 2023, small-company CFOs are all-in with plans to ramp up business spending this year.

Even before financial firms lowered their expectations for a recessionary year — Goldman Sachs, for example, recently downgraded the likelihood to 25% from 35% — such CFOs were ready to spend on growth. 

A large majority of these finance chiefs, 300 of whom were surveyed in late 2022, predicted spending will increase this year across the full corporate spectrum: capital expenditures, payroll, operating expenses, marketing, sales, and production. (See table.)

The CFO 2023 Outlook Survey polled 100 non-finance executives as well as 100 managers, split among finance and nonfinance managers. Its findings indicate the spending trend is most prominent with respect to capex: more than three-fourths (78%) of surveyed CFOs forecast they’ll do more capital spending in 2023, and among those, nearly four in 10 said the increase will be more than 10%.

It’s not surprising that most small, growing companies place capital expenditures as their highest priority. They are designed to facilitate asset growth while operating expenditures are spent on an ongoing basis to generate revenue from existing assets. In the software field, where many young, small companies play, most capex is for research and development and developers’ wages. Accounting rules give companies the option of capitalizing these costs as assets on balance sheets.

Why, though, are small companies so keen on spending more overall? 

“It’s not provable or measurable, but my sense is that after overcoming so many obstacles the last three years, a lot of small companies are confident that they can handle anything thrown at them,” said Jack McCullough, who has led finance for dozens of pre-IPO companies and currently runs the CFO Leadership Council.

Labor-Market Relief?

The new availability of thousands of workers recently let go by major U.S. technology companies could be a boost for small tech firms that will require additional capex. While the overall U.S. unemployment rate is historically low, those layoffs should add increase the number of qualified developers and other R&D professionals available for hire.

And it likely won’t be just those already-displaced professionals who stick a toe into the pool of job seekers.

“It’s not only those in transition but also their former colleagues who may have become disaffected,” said McCullough. “At a company that lays off 10% of its force, a large portion of the remaining 90% will start looking for job opportunities more aggressively than before, or be willing to have a conversation even if they’re not actively looking.”

Indeed, tech companies may have made more capital expenditures in 2022, had the labor pool been more bountiful then. “I can’t tell you how many CFOs have shared with me a desire to embrace a digital strategy but said they simply didn’t have the people to take it on,” McCullough said.

Any delays or slowdowns in growth-oriented spending were not only because there weren’t enough technologists to hire. The ongoing challenge of filling some other important corporate and finance roles has been a factor as well. For example, one CFO in McCullough’s network hired a controller in January after looking for one for two years. He pointedly asks, “How can he lead a full-scale digitalization effort while doing both of those finance jobs?”

Tables Turned

In an interesting twist, CFOs, who historically have been more fiscally conservative than their fellow C-suite denizens, appear less so with respect to 2023 spending expectations.

Fewer non-finance executives than CFOs reported that they foresee spending increases in each broad area studied. (See chart, below.) The perception gaps were particularly wide in capex, payroll, and marketing.

CFOs are definitely more optimistic than they were six months ago, McCullough observed, and he understands why. “If anything, I might be confused about the lesser optimism of the other executives,” he said.