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CFO Confidence Decreases Amid High Costs and Lingering Uncertainty

Updated: Nov 16, 2023

According to a recent survey from StrategicCFO360, forecasts by CFOs for business going into 2024 have shifted downward, as a high cost of capital, potentially new rate hikes by year end, shrinking demand, geopolitical turmoil, and an upcoming presidential election in the U.S. slow business growth.

More precisely, the leading optimism indicator shrank nearly 4 percent this quarter, to 6.1—from 6.4 in Q3, when most believed that the Fed was ready to pause—and likely end—its quantitative tightening. And CFOs’ rating of current business conditions stayed relatively flat, at 6.1 as well.

There is too much uncertainty in the market at this point and generally, the consequences of interest rate hikes lag and hit the economy in about 6-12 months,” said one of the CFOs participating in the survey. “Also, 2024 is an election year. Based on the data I have been analyzing, I am expecting a recession to hit sometime first half of 2024.”

Customer needs are not as high in volume as 2022/2021 dictated. There is a lot of uncertainty with our customers, which has impacted our forward looking 12 months to more adjusted historical averages,” said the CFO of a privately held transportation company.

Speed of business has dropped dramatically,” said the CFO of a VC-backed software company. “Decisions that were made within a month over the past 5 years are now taking months.”

Overall, the proportion of CFOs projecting conditions to improve by this time next year dropped 9 percent in Q4, to 38 percent from 42 percent in Q3. Instead, a full third now expect conditions to deteriorate—an increase of 48 percent from Q3.

However, at the current 6.1 level, the forward-looking optimism indicator is back in line with where it started[AL1] the year—and 11 percent higher than it was at this time last year (5.5/10), perhaps an indicator that although uncertainty and challenges remain, so does hope that a recovery is getting nearer.

Michael Polaha, SVP finance transformation and strategy at BlackLine, says the key to dealing with any business or economic uncertainty is “to have timely, accurate and actionable data, and “the investment strategy of many corporations is still to leverage technology, especially investments that result in accelerated time to value and provide the necessary insight and intelligence into the business and its operations.

When asked how all of this is likely to affect their respective companies, the proportion of CFOs forecasting increased profitability a year from now remained flat vs. Q3, at 61 percent, and those expecting revenues to grow increased to 77 percent, from 74 percent in Q3—both signs that CFOs trust their companies have implemented the right measures to navigate this difficult economic environment.

Part of those measures may well be in setting the right capital allocation strategy—mainly cost containment. The survey data also found a declining proportion of CFOs planning to up capex and hiring in 2024: 32 percent said they plan to increase capital expenditures next year—down from 35 percent in Q3—and 46 percent plan to increase hiring—down from 49 percent in Q3.

Polaha isn’t surprised. “Economic factors warrant a more focused capital allocation strategy,” he says, “and investments in technology that allow for workforce agility and scale, while providing management with the ability to pivot the workforce, are bubbling to the top.”

He has observed that things like the automation of repetitive tasks tops the to-do list for many leaders today, thanks to the perpetual benefits these investments render.

And when asked about their debt and cash positions, 27 percent expect to increase debt (vs. 24 percent in Q3) and 47 percent plan to increase their cash position (unchanged since Q3).

If you are a business owner or CEO within the San Francisco Bay Area or Silicon Valley, in need of an experienced fractional CFO to help your company improve profit margins, as well as identify strategic opportunities, and improve cash flow, our highly skilled outsourced CFO services provide direct access to high-quality expertise in a cost-effective manner.

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