CFOs: Cash Flow Is Top Worry for 2011

78% see no recovery for two years.

via TD Bank

Sixty-nine percent of chief financial officers and other corporate finance managers at mid-sized businesses say that it’s the intense challenge of managing cash flow that worries them the most, according to a survey conducted by TD Bank. Proper capital allocation and cash flow management will also be next year’s top financial management priorities for 41 percent of respondents.

Despite their cash concerns, only 7 percent of corporate finance managers say they plan to slash expenses in 2011. Thirty-nine percent of those surveyed expect their capital investments to increase next year, and when they spend, it will be on new technology.

CFOs forecast a slow upturn

The TD Bank survey also found that corporate finance managers are realistic in their view of the economy, with 78 percent of executives noting that the recovery might take up to two years to materialize. They say that the surest signs of a lasting upturn will be falling unemployment rates (46 percent), sustained growth in their own organization’s sales (21 percent), and an influx of new customers buying their products and services (9 percent). Additional key mentions include seeing improvements in the real estate market (8 percent), access to credit (6 percent) and stock market performance (4 percent).

Having emerged from the depths of the recession, nearly half of financial executives (45 percent) note that their sales increased in the past year, with a quarter saying they increased by 10 percent or more. However, for one third, sales continued to fall. Executives have a cautiously optimistic outlook on the near future, with 58 percent saying their sales will increase in the next year, including a quarter who expect them to increase by 10 percent or more.

A return to capital investments

This measured confidence will fuel increased capital investments, with 39 percent of corporate finance managers expecting capital investments to increase, and 21 percent expecting an increase of 10 percent or more. One-third anticipate that capital investments will hold steady. Still, 21 percent are unsure whether their capital investments will increase or decrease in the next year.

Technology is far and away the top area for planned capital investments, followed by improvements to existing facilities (57 percent), workforce hiring (50 percent) and development (46 percent), and office equipment (47 percent).

Recession is a school of hard knocks

Executives polled for the TD Bank survey anticipate that the road to recovery will be bumpy. They believe that the most likely constraints on capital investments will be cash flow (46 percent), unsure levels of funding from clients and government (18 percent), as well as the political climate, including government regulations and policies (13 percent).

The most significant risks to cash flow itself over the next year will be an increase in non-performing accounts receivables (21 percent) and reduced sales (19 percent). Only 5 percent of respondents cite the economy as the biggest threat.

Mid-size businesses point out several other financial challenges as they continue to weather the economy and prepare for an upswing. Interest rate volatility is a key concern for 55 percent of those surveyed, followed by adequate access to credit for 52 percent.

Still, corporate finance executives say they learned much from the challenge of steering their company’s finances through the worst economic period since the Great Depression. Their top lessons learned include the need to take on and properly manage the right amount of debt (21 percent), the importance of managing cash reserves (21 percent), and avoiding and correcting bad investments (14 percent).

They also cite the best financial decisions they made for their organizations during the past 12 months as preserving cash (22 percent), reducing expenses (8 percent), laying off staff (7 percent) and managing currency risk (7 percent). However, a significant 9 percent mention the smartest decision was to invest in new services and lines of business.

Posted on October 29, 2010