In the 1970s and early 1980s, when North America experienced a prolonged period of stagflation, magazine publishers used to nod wisely while saying, “You can always tell a recession is on its way when issue page counts go down.” Since page count is determined by advertising spend (which is almost always viewed as discretionary), it was a subtle but accurate warning sign that hard times were on the way.
In today’s very different global economy, early warning signs of economic downtown are perhaps less subtle, as bickering over tariffs and trade policies and climate crisis-induced inflationary pressures on the cost of living are widely reported.
According to a newly released Corporate Finance Survey of 300 financial decision-makers conducted by TD Bank, when it comes to preparing for the future, U.S. businesses are acting with caution. Although 83% of respondents have an overall positive outlook on the future of the economy, more than half (58%) are preparing for an economic downturn.
The survey examined CFOs, treasurers and other financial professionals’ perspectives on the economy, business environment, geopolitical trends and growth plans to better understand challenges and opportunities in the market.
The top actions respondents are taking to prepare for a downturn are:
- Developing investment strategies (49%),
- Cutting back expenses (39%)
- Working on reducing debt levels (34%)
- Monitoring cash flow (34%)
Among those preparing for a downturn, those who are optimistic about the U.S. economy in the long term are more likely to develop an investment strategy, with 58% preparing to invest compared to 36% of pessimistic finance professionals.
“CFOs, treasurers and financial decision-makers should monitor economic uncertainty,” said Stephen Foley, Head of Corporate Banking at TD Bank. “With headwinds on the horizon in the form of changing tariffs and trade policies and potential inflationary pressures, finance professionals should act now and work with a financial partner to determine viable debt and cash flow plans.”
Tariffs and Trade Policies Will Impact Business and Financial Decision Making
Executives feel positive about the health of their own business: 94% report they are optimistic about the future and consider the health of their business “excellent” or “good”. Despite their confident outlook, finance professionals acknowledge that geopolitical factors will impact their business this year.
The top factors that will impact their financial decision-making are:
- Tariffs and trade policies (35%)
- Interest rates (34%)
- Consumer confidence (34%).
Finance executives acknowledge the challenges of tariffs and trade policies more than non-executives: 42% believe it will impact their financial decision-making this year compared with 22% of non-finance executives.
The Business Community is Focused on Growth and Innovation
When assessing their business priorities for the next year, finance professionals are focused on growth and innovation. According to the survey, the top two business priorities next year are investment in technology and innovation (45%) and expansion into new markets (44%). More specifically, finance professionals report their business plans this year include technological upgrades (39%), launching new products (39%) and leveraging disruptive technology (35%).
For many businesses, growth plans and innovation will create internal challenges and put pressure on finances: 39% consider the ability to achieve growth as a major internal challenge, and this number rises (48%) among larger corporations (businesses with revenues exceeding $500 million).
Private companies are challenged by technology more often than public companies, with 43% citing technology challenges pressured finances compared with 28% of public companies.
“Among finance professionals the mindset is growth and optimism,” said Foley. “As they determine their strategies to achieve growth in a strong economy, they’ll still need to allocate capital to invest back into their business. Financial decision-makers now find themselves contending with a competitive business environment where a consistent model for achieving growth is paramount.”
Funding for Growth Plans
Finance professionals currently utilize equity financing (23%) and retained earnings (23%) as their primary sources for capital spend. Supply chain financing (39%) and accounts receivable securitization (37%) were the top picks for supplemental funding sources.
“Securitization and supply chain financing are a great way for companies to maximize working capital. While the economy is strong, it’s the perfect time to evaluate your bank loans and speak with your financial partner who can bring deep industry expertise and product capabilities that support you through every business cycle,” said Foley.
Finance professionals want a strong relationship with their financial partner. Over one-third of respondents consider a “good relationship” most important when selecting a financial partner (37%). Respondents also cite stability of the partner (30%), deep industry knowledge (29%) and availability of capital (28%) as important factors when selecting a financial partner.
A whitepaper, “Guarded Optimism Prevails as Executives Chart the Future,” providing more details and analysis on the findings is available here.
Source: TD Bank