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Canadian CFOs, plan for a year of action

FRI0518

 

Published on May 30, 2018

Earlier this year, Deloitte Private released the first report of its kind, Global Perspectives for Private Companies. The report comprises viewpoints from business leaders representing 30 countries in 19 languages, including the perspectives of 100 Canadian managers and executives of privately held firms (5 per cent of the global data). This is really a detailed look at what executives around the world are thinking and planning. The findings reveal several trends that ought to shake up Canadian business leaders, and spur CFOs to action.

Among the most striking revelations: a gap in the level of R&D spending by Canadians versus their cross-border competitors. This is a signal that many businesses are not building the resources that will allow them to scale down the line. In turn, this will have a profound effect on long-term growth and our ability to stay competitive and viable. Clearly, our global competitors are not slowing down and Canadians cannot afford to either. CFOs have an important role to play in making sure that sufficient funds are directed where necessary. After all, it’s a lot harder to survive when you’re playing catch-up.

Similarly, the report found that many business leaders expect a reduction in both productivity and investment this year, which could hinder Canadian businesses from competing globally. More Canadians expect reductions in headcounts and cash balances compared to our global counterparts. While a majority of global executives expect to see an increase in capital investments, profits and productivity, less than half of Canadian executives have the same expectations.

Canadian business leaders also anticipate slower M&A activity in the next 12 months. In fact, almost twice as many global executives as Canadians plan to make an acquisition this year, primarily to expand or to diversify a client base. However, I think this statistic has more to do with expectation than reality. The fact is, activity around private equity has never been higher and is still growing. Valuations are at an all-time high as well. We can expect this statistic to change dramatically when the next Global Perspectives report comes out. The truth is Canadian CFOs are often more prudent when looking at deals, and specifically in growing through expansions.

Another startling finding: one out of every two global business leaders is concerned about disruption. Over 50% of global CEOs expect their business to be disrupted in the next three years. That’s a massive issue and a huge wake-up call for Canada, mainly because Canadians are more skeptical that disruption will directly affect their own organizations. The reality is, no matter where you look globally, everyone is concerned. This means that business leaders need to embed disruption strategies into their own organizations that much faster.

At the same time, CFOs need to continue to create an environment in their organizations that allows for innovation. Seek out funding sources, make some bets on innovative ideas, and allow your organization to push the disruption agenda forward.

There are positive findings as well. The report provides details on the viewpoint that globalization is happening a lot quicker today. It’s here to stay despite the political forces that may be opposed to it. At the same time, technology has achieved a far greater reach into the consumer space than ever before. According to Cisco’s 10th annual Visual Networking Index1, another billon people are expected to join the Internet by 2019, creating a global digital middle class and lifting millions out of poverty worldwide.

Together, these two forces represent a massive opportunity for Canadian companies. Technology has given us the ability to reach global markets like never before. One only has to look to Shopify as a powerful example of how Canadian businesses can use new technologies to reach consumers around the world. Access to more people is the real key to expansion and growth. It’s pretty hard to scale without an investment in emerging technology.

As a CFO, the time is right for you to help your organization take advantage of this unprecedented access and think beyond the Canadian landscape. The report found strong confidence in the market, despite uncertainty surrounding current events in the U.S. and UK. In fact, we found that nearly two thirds of Canadian, as well as global, executives are highly confident in their company’s success over the next 24 months.

This is particularly interesting because, as Canadians, we tend to be much more conservative when it comes to risk, and more guarded in our responses. For example, consider a Canadian and U.S. company experiencing similar results. The Canadian executive might say, “we’re having a good year,” while our American counterpart would be more likely to say, “we’re knocking it out of the park, we’re on fire.” It all boils down to perspective and outlook. Thanks to our relative stability in this part of the world, Canadian business leaders are more optimistic about the future than our peers worldwide. So CFOs, it’s time to act on that confidence!

 

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1
https://newsroom.cisco.com/press-release-content?articleId=1644203

 

Contact

Mike Runia Mike Runia

Michael is the Managing Partner for Canada’s Deloitte Private Business. He has extensive experience providing audit, accounting, tax and business advisory services to public and private companies in Canada, the U.S. and across the globe. An active marketplace player, Michael brings strong advisory skills to our clients. He has significant experience in financings and initial public offerings, preparing business plans and forecasts, interpreting accounting rules and regulations, as well as other advisory services.

 

 

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