Congressional dysfunction around tax reform hindering aggressive growth
CHICAGO--(BUSINESS WIRE)--The nation s finance chiefs are relatively optimistic about the future, but remain cautious in the face of domestic uncertainties like Congressional inaction on tax reform. This is according to the latest edition of Grant Thornton LLP s CFO Survey, which reflects the insights of more than 900 chief financial officers and other senior financial executives across the United States.
While the U.S. economy has stabilized, our data suggest that uncertainty related to other economic factors is making strategic planning difficult for financial executives
More than half (55 percent) of CFOs say uncertainty in the U.S. economy is a major concern that could impact their businesses growth in the next 12 months. This is despite the fact that most CFOs expect the U.S. economy overall to remain the same (49 percent) or improve (43 percent) in the next 12 months, suggesting that factors other than the overall health of the economy are presenting a barrier to growth.
While the U.S. economy has stabilized, our data suggest that uncertainty related to other economic factors is making strategic planning difficult for financial executives, said Randy Robason, Grant Thornton s national managing partner of Tax Services. CFOs are looking to Washington, regulators and the Federal Reserve for answers and getting nothing but indecision.
Business leaders concern over these economic uncertainties appears to have increased significantly since earlier this year. In May 2015, only net 22 percent of U.S. business leaders saw economic uncertainty as a major constraint on their ability to grow in the coming year, according to the Grant Thornton International Business Report.
Particularly frustrating for CFOs is the dysfunction in Congress over a bill to extend more than 50 popular tax provisions that expired at the end of 2014. When Congress returns from August recess next week, it remains to be seen whether it will revisit the bill and allow the use of these tax benefits on 2015 filings.
- More than a third (37 percent) of executives are acting as though the extension will not occur
- Twenty-six percent are assuming some amount of risk that it will not occur, and are planning accordingly
- Just 9 percent of CFOs assume fully that the extension will occur
- Especially striking is the fact that more than half (51 percent) of companies that actually use the provisions are doing all their planning with the assumption that the extension will not occur.
In past years, negotiations over the tax extenders bill dragged on into December this is very troublesome and creates major headaches for U.S. businesses, said Mel Schwarz, partner and director of tax legislative affairs in Grant Thornton s Washington National Tax Office. Lawmakers need to agree on at least a two-year retroactive extension of nearly all the provisions, with a one-year extension as an absolute fallback.
Cybersecurity is also a major source of worry for financial leaders, especially in light of recent high-profile cyberattacks on major U.S. companies. When considering what the most significant cyber risks they face are, nearly half (44 percent) of CFOs say the most significant risks are the unknown risks, and a majority (57 percent) say it is the potential for undetected breaches. Interestingly, more public companies (47 percent) fear they are at risk of reputation loss compared to private companies (31 percent).
Regulatory and compliance burdens also top the list of concerns for finance chiefs. Nearly half (45 percent) of CFOs say that increasing costs of compliance present the biggest challenge to growth, and nearly a third (31 percent) say that keeping up with the volume and complexity of regulations is their number-one challenge.
Amidst the overall economic and political uncertainty, financial executives are averse to riskier growth strategies. The vast majority of companies (80 percent) say they plan to pursue growth strategies in existing markets, and only 11 percent plan to expand into international markets. Most CFOs (54 percent) plan to fund growth in the coming year by leveraging existing cash reserves, while 47 percent say they will use debt financing.
While the survey also suggests that the recent enthusiasm for mergers and acquisitions (M&A) may be waning, with only 28 percent of finance chiefs planning to pursue M&A opportunities in the coming year (a 9 percent drop since fall 2014), CFOs of companies in certain industries had varied opinions:
- For example, 37 percent of CFOs in the health care industry plan to pursue M&A in the coming year (9 percent higher than the national average)
- Fifty-four percent of finance chiefs in the technology industry expect their industry s financial prospects to improve, 10 percent higher than national average
- Energy-industry CFOs are also surprisingly optimistic given the current downturn in oil and natural gas prices, with nearly 40 percent expecting their industry s financial prospects to improve in the coming year and only 7 percent expecting them to worsen
- In the manufacturing sector, 40 percent of manufacturing CFOs say uncertainty in global markets could impact their growth, 15 percent higher than the national average
Meanwhile, good news for finance professionals: CFOs are aggressively looking to develop and hire new talent. The vast majority (70 percent) of CFOs say finding and retaining the right talent is a critical need for supporting growth. Forty percent expect their business s new hiring to increase in the next six months; 52 percent expect hiring to remain the same. A majority of CFOs (67 percent) plan to increase salaries in the coming year, holding steady since 2014.
The full report is available at grantthornton.com/cfosurvey.
About Grant Thornton LLP
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