The concern of all senior finance professionals in 2014 will continue to be the proper management of cash flow in an environment of shrinking margins and soft demand. To foster revenues, companies will need to improve responsiveness and meet customer expectations through innovation. Productivity advancements will come from the implementation of new technology. To contain costs, the focus will include overall spending; technology spending; and the efficient use of marketing. All of these actions are internal in nature, i.e. the CFO will be able to exert some amount of control.
However there are three very specific issues in 2014, which will consume the thoughts of CFO’s as they potentially have a direct impact on the cost structure of the business model. All of these activities are external in nature. The CFO will have little control, but will be responsible for integrating change within the organization.
Data Security – Gregg Steinhafel Chairman, President and CEO, Target announced on December 19, 2013 – “We wanted to make you aware of unauthorized access to Target payment card data. The unauthorized access may impact guests who made credit or debit card purchases in our U.S. stores from Nov. 27 to Dec. 15, 2013.” As a result of the breach, up to 40 million credit- and debit-card accounts may be compromised. The true impact of the theft to consumers will not be known for some time; but the impact to Target will be immediate and may include a loss of confidence by its consumers with a corresponding decline in business. It will be important to watch this situation unfold to understand what Target does correctly vs. what Target does incorrectly. What regulatory actions will evolve out of this issue?
Tax – On January 1, 2014, the IRS’s new requirements regarding when taxpayers capitalize vs. expense for acquiring, maintaining, repairing and replacing tangible property becomes effective (T.D. 9636). The exact impact to your organization is based on your business model. The regulation is complex and should be reviewed early on to maximize the benefit to your organization.
With respect to state tax, twenty-three states have either expanded or proposed sales tax nexus expansion laws, i.e. click-through nexus for internet sales. A firm without physical presence within a state, but sells goods and services, may be required to pay sales tax to the state. This trend is expected to continue to evolve. Check with the tax body in the states where you operate to understand if you will be newly impacted.
Compensation – Various unrelated actions are occurring in the compensation space, which will result in this area as a main focal point in 2014 –
- CEO Compensation Ratio – On October 1, 2013, the SEC Pay Ratio Disclosure proposal was published in the Federal Register for a 60 day comment period. “As required by the Dodd-Frank Act, the proposal would amend existing executive compensation disclosure rules to require companies to disclose: the median of the annual total compensation of all its employees except the CEO; the annual total compensation of its CEO; and the ratio of the two amounts. [SEC Proposes Rules for Pay Ratio Disclosure, Press Release 2013-186] From October 1 through December 2nd – 493 comments were received. Expect the SEC to publish its analysis during 1Q2014 with a final rule published soon after.
- Minimum Wage Changes – Thirteen states will have minimum wage increases effective January 1, 2014 – Arizona; Colorado; Connecticut; Florida; Missouri; Montana; New Jersey; New York; Ohio; Oregon; Rhode Island; Vermont; and Washington. The smallest increase is $0.10/hour; with the largest increase $1.00/hour.
- Cost of Healthcare Benefits – The cost of health insurance is evolving and should be closely watched.
The success of your business is directly related to your ability to execute on your plans, i.e. internal factors where you have some control. However, it is important to understand external actions that may impact your business in the future, to allow for their future integration, if required.
What issues are of concern to you?