A new survey from Grant Thornton reveals that despite a significant drop in confidence, chief financial officers (CFOs) still anticipate profit growth.
Grant Thornton’s Q3 2024 CFO survey engaged more than 230 senior finance leaders and found that 79% expect growth in net profits over the next 12 months — a 10-quarter high for the survey. However, the percentage expecting growth over 20% fell amid ongoing economic and political volatility.
Another sign of uncertainty is that only about half (51%) of CFOs are confident in their businesses’ ability to meet demand goals, a 12-point drop from the firm’s Q2 survey and the lowest confidence level in a year. Confidence in other areas was similarly down, with 53% of CFOs expressing confidence in meeting supply chain objectives and 49% confident in meeting labor needs. Additionally, 42% of CFOs felt confident about controlling costs, and 45% believed they would meet growth projections. As a result, cost optimization became a key focus, rising to 64% — a 10-quarter high.
Most CFOs reported using generative AI for customer relationship management and customer experience (60%, up from 45% in Q1) and product and service development.
Despite these challenges, Paul Melville, national managing principal of CFO Advisory for Grant Thornton Advisors LLC, remains optimistic. “Finance leaders’ belief in their ability to drive profits at their organizations remains unshaken, even as their confidence in other key fundamentals tumbled in an unsettled environment,” said Mr. Melville. “CFOs believe they can push the right buttons to help their organizations thrive in the long term.”
Spending on IT and Digital Transformation Surges
The survey also revealed a significant rise in IT and digital transformation spending. Nearly two-thirds (66%) of CFOs plan to increase spending in this area over the next year, marking a 15-quarter high. Melville explained that this investment indicates that companies are focused on staying competitive by keeping pace with technological advancements.
“CFOs understand that they need these technological capabilities to be competitive,” added Mr. Melville.
Most CFOs reported using generative AI for customer relationship management and customer experience (60%, up from 45% in Q1) and product and service development (58%, up from 35% in Q1). Meanwhile, boards are increasingly focused on governing the use of generative AI, aiming to balance its potential rewards with associated risks.
The survey indicated that senior finance leaders are increasing investments in sales and marketing at the highest rate in the past 15 quarters.
“In the era of GenAI investment, management teams will spend resources on the use cases they believe create a competitive advantage in the market,” said Mike Notarangelo, partner and private equity audit and assurance leader at Grant Thornton. “Boards of directors need to develop an agile AI governance framework to evaluate those investments and safeguard against AI-related business risks.”
Investing in Sales and Marketing is on the Rise
The survey indicated that senior finance leaders are increasing investments in sales and marketing at the highest rate in the past 15 quarters. Fifty-six percent of respondents expect these expenses to rise next year, while only 7% anticipate a decrease.
“This is how you gain market share,” said Mr. Melville. “CFOs are recognizing the need to differentiate their products and services, and they’re investing more in sales and marketing as a proactive move to drive growth and capture market spend.”
For the fourth consecutive quarter, 42% of respondents identified human capital expenses related to headcount and compensation as their top areas for potential cost cuts. However, workforce rationalization was at a record low focus (27%), representing a 20-point drop from the previous quarter. Nonetheless, only 14% of respondents said they do not plan to cut costs at all — a record high for this survey.
Keeping an Eye on Politics
Sixty-one percent of respondents believe that the November U.S. election results may prompt changes in their business strategy. The respondents identified the election’s potential impact on the overall economy as the biggest concern, with a lesser focus on the effects of tax, regulatory, and trade policies.
As a result, CFOs have mixed views on how to proceed with investments during this period of uncertainty. Thirty-one percent are accelerating investments in anticipation of the election, while 23% are delaying some investments until after the results are known. Meanwhile, 46% said the election will not impact their investment plans.
Mr. Melville advised against allowing election concerns to overly influence business planning. “You’re still going to invest in AI to drive improvements through technology,” said Mr. Melville. “You’re still going to make sure your cybersecurity protections are strong. The business fundamentals like efficiency in the finance function and the basics for growing your business aren’t going to change regardless of who is in the White House or the government.”
Click HERE to download a free copy of Grant Thornton’s Q3 2024 CFO survey.
Founded in Chicago in 1924, Grant Thornton is the U.S. member firm of Grant Thornton International, one of the world’s largest audit, tax, and advisory firms. The firm has more than $2.4 billion in revenues and operates in over 50 offices with over 600 partners and 9,000 employees.
© 2024 Private Equity Professional | October 16, 2024
