The five challenges facing Texas CFOs in 2016

Heading into the second quarter of 2016, Fort Worth-based financial executives remain optimistic about revenues and profitability, but they are also concerned about several pressures looming over their companies. According to the Bank of America Merrill Lynch 2016 CFO Outlook, which surveyed 500 financial executives from companies with annual revenues ranging from $25 million to $2 billion, the top earnings threats that CFOs are confronting include health care costs, weak domestic demand, increased competition and a shortage of skilled talent.

With CFOs focused on mapping out the rest of 2016, here are considerations and best practices for addressing top business concerns:

Managing increased health care costs

According to the CFO Outlook, financial executives cite health care costs as the second-highest factor to impact the U.S economy in 2016 (uncertainty surrounding the elections takes the top spot). Health care costs are also noted as the top business threat for business expansion. As companies plan to hire, they are also facing the challenge of managing increasing labor costs. This concern remains top-of-mind for CFOs in our region.

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CFOs must continually monitor trends in the cost of benefit programs and take measures to offset health care costs. For example, offering a high-deductible plan combined with a health savings account has saved businesses 12 percent on average in premiums in the first year, according to Cigna.

Addressing weak domestic demand

The decline in energy prices has been felt in Fort Worth. While the energy industry remains a dominant employer and has a large economic benefit on the region, it also casts a long shadow in Texas.

However, the region is still experiencing growth. The population of the Dallas Fort Worth area is expanding by 150,000 people per year. Aviation, real estate, transportation and logistics, and manufacturing are growth segments in Fort Worth. With the success of companies such as American Airlines, Lockheed Martin and the Dallas Fort Worth International Airport, CFOs are feeling cautiously optimistic.

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Facing increased competition

Increased competition is inevitable in a global economy. Companies should think proactively and strategically about expanding into new regions, even if international expansion won’t happen until 2017. Financial executives are looking to us for a wide range of financial products and resources to structure creative and innovative solutions. They are also focusing on programs to attract and retain top talent to strengthen their workforce.

Combating a shortage of skilled talent

According to the CFO Outlook, more than half (54 percent) of CFOs say they plan to hire additional full-time employees in 2016, up from 52 percent last year. This is the highest figure reported following the financial crisis in 2008. While companies have ambitious plans to hire, finding and retaining top talent continues to be an issue.

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The Fort Worth market has a diverse and skilled workforce. According to the Fort Worth Chamber of Commerce, the greater area has added 1.2 million residents since 2000. As CFOs remain focused on driving growth, more are beginning to work with their human resources counterparts to ensure that the right talent is, and remains, in place to execute business strategy.

To do this, CFOs are evaluating and investing in benefits and workforce needs that will keep the company attractive for existing and future employees. For example, according to the CFO Outlook, some of the most popular options include health care insurance, retirement funding, wellness programs and education funding.

Planning for the future

Beyond these immediate threats to revenue growth and profitability, CFOs cited a couple of concerns lingering on the horizon: interest rate increases and the outcome of the November elections. A key priority for local CFOs should include understanding rate management strategies and their impact on working capital. In addition, financial executives will be closely watching the outcome of the elections, given the changes that could occur to legislation affecting health care, wages and U.S. infrastructure.

With an influx of talent and a diversified economy, Fort Worth is looking at newer industries for growth. While keeping an eye on macroeconomic factors and energy prices, local CFOs are optimistic that growth will continue but at a more measured pace.

Richard Holt is a market president for Bank of America and the North and Central Texas regional executive for Global Commercial Banking at Bank of America Merrill Lynch. In his BofAML role, he is responsible for leading a team that provides comprehensive financial solutions and industry expertise to middle market companies with revenue between $50 million and $2 billion. Holt joined a Bank of America predecessor bank in 1978 and has been involved in real estate and commercial lending throughout his 35-year career.

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