business CFO Outlook for 2023 December 12, 2022 What are the top concerns for CFOs as we head into 2023? Rising costs and talent shortages top the list. Here are some strategies to help you cope with these challenges. Planning for the year ahead is especially challenging in today’s volatile marketplace. The Republicans appear to have achieved a narrow majority in the U.S. House, so it’s unlikely that the favorable tax law changes for businesses under the Tax Cuts and Jobs Act will be reversed. This provides short-term tax planning certainty as we head into year end. However, many CFOs expect the current economic downturn — including high inflation, supply shortages and economic uncertainty — to last through 2023. Here’s an overview of top CFO concerns based on recent surveys, along with strategies to help weather the storm. Rising Costs Companies have experienced record inflation in 2022, leading to higher materials, supplies, energy and shipping costs. A significant majority (93%) of CFOs expect increased costs to persist through 2023, according to the Enterprise Financial Decision-Makers Outlook annual survey of over 650 finance executives published by financial software provider OneStream and Hanover Research. Most economists are finally admitting that we’re in — or heading toward — a recession, causing CFOs to tweak their spending plans for 2023. Almost half (48%) of survey respondents modified their forecasts slightly for a recession, and more than a third (37%) made significant changes to their original plans for the year ahead. Only 11% had the foresight to factor recessionary conditions into their original year-end planning. When asked about strategies to manage cost increases, over half of survey respondents (56%) said they will increase prices, 47% will slow (or freeze) hiring or cut operational costs, and 39% will renegotiate contracts with suppliers. Talent Shortages One cost center that most companies can’t afford to scrimp on is employee compensation. Another recent survey — the 2022 CFO Insights Report by U.S. Bank — found that the shortage of skilled workers was the top concern for 40% of finance executives. As companies struggle to fill key positions with qualified workers, they’re being forced to boost pay and expand benefits. While recessions usually bring layoffs, few CFOs are considering lowering their head counts for 2023. Instead, 42% of survey respondents report looking into machine learning and automating manual processes to help curb rising labor costs, boost productivity and tackle other challenges in the current labor market. However, machines can’t replace humans for highly skilled positions. The survey found the three most desirable traits when recruiting workers are: Problem-solving/decision-making abilities,Strategic/business-oriented thinking, andCommunication skills. Finding candidates with the right skillsets for the right price — and retaining them — can be challenging. Approximately one-third of CFOs expect hiring conditions to become more difficult for highly skilled positions by the end of 2022, compared to less than one-tenth who expect hiring conditions to ease, according to The CFO Survey for the third quarter of 2022. This quarterly survey is a collaboration of Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta. ESG Issues Despite rising costs, many companies have plans to increase spending on environmental, social and governance (ESG) initiatives in 2023. The Enterprise Financial Decision-Makers Outlook survey found that 87% of CFOs plan to invest the same amount or more in ESG for their business next year. One reason for the uptick in ESG spending is that the Securities and Exchange Commission recently announced a proposal to require public companies to disclose carbon emissions and other climate risks. Additionally, some companies are voluntarily providing ESG disclosures and pursuing ESG initiatives, because they see increased transparency about ESG matters as a way to build goodwill with customers, lenders and other stakeholders. ESG matters cover more than just environmentally friendly business practices. Increasingly, companies are focusing on the social component. For example, over half (58%) of survey respondents believe a gender pay gap is an issue for recruiting women into finance roles. Another area of concern is diversity, equity and inclusion (DEI); 85% of respondents plan to maintain or increase their current DEI spending for 2023. Contact Us Is your company ready for what’s coming in the New Year? Our CFO Services team can help you evaluate company-specific risk factors in light of today’s economic disruptions and recast your financial goals and forecasts as needed. We can also help you manage labor challenges and pursue ESG initiatives that add value.