Next year, companies should hoard cash, look at reinventing health-care benefits, and get vigilant about data security, one finance chief insists.
Like every year, 2013 will present new challenges. Are you ready? It turns out the Mayans were wrong! It’s a new beginning not an ending.
Yes, it’s almost that time again – the time for New Year’s resolutions. The idea of making resolutions might bore you, or you might think you don’t have enough time for it. But think of it as an opportunity to refocus your team and engage the entire company in the priorities you consider most important for the coming year.
With that in mind, here are three priorities that should top your list.
Hold Your Cash
Will a deal on the Fiscal Cliff include a major change to the corporate tax code? If so, how would that change the way you invest your capital?
Both President Obama and Republicans have suggested we need an overhaul. Indeed, the code is arcane to say the least. We have the highest tax rate among OECD (Organization for Economic Cooperation and Development) countries, but actual revenue collection is low due to loopholes and deductions. Companies have responded aggressively. Scads of lawyers and accountants seek offshore tax havens. Many locate jobs overseas.
Small businesses, most of which are eligible for S-Corp tax treatment, are most likely to be negatively impacted by a fiscal cliff deal, affecting investment in the demographic segment most likely to generate jobs. If the tax rate on the highest earners goes up (as seems likely), it will negatively impact business investment.
Will all this uncertainty have an impact? You bet. Even small businesses without well-documented business plans rent space and buy equipment. But less so, if they aren’t sure how they will be taxed.
Pundits might whine and the public may shake their heads, but CFOs should consider the old adage “cash is king” as a guiding principal during the coming year. Cash is a cushion in the event of a downturn driven by Middle East unrest or European Union insolvency. Cash is protection against the impact of fiscal contraction. Cash is a hedge in a near-zero interest-rate environment.
Look at New Health-Care Options
Now it’s serious. Those who were awaiting the outcome of the election and hoping for at least a partial repeal of the Affordable Care Act know now that’s not going to happen. But, what will happen?
Well, it’s still hard to say. A major bill of nearly 3,000 pages creates a lot of work for regulators, who are still writing the rules to implement it. Among the great mysteries is what form the new insurance exchanges will take. Is your state among those that will set up an insurance exchange? If not, there may be a tax imposed. How will that impact employers? No one is quite sure.
Meanwhile, health-care costs are projected to rise by 7.5% in 2013, according to a recent report by PricewaterhouseCoopers.
While we contemplate the costs and benefits of the new law, an approach taken by major employers Sears and Darden Restaurants ay become a template for many. They will contribute a fixed amount to an exchange managed by Aon Hewitt that will offer a greater choice of plans than employers typically provide for their workers. The approach doesn’t necessarily shift more cost to employees, but it forces them to take more responsibility for their choices. Other, mostly smaller companies are already using similar private exchanges, and that field is expected to expand significantly over the next few years.
Solutions of this sort will be the order of the day as we approach full implementation of Obamacare in 2014.
Defend Your Data
For the first time in history, consumer preference is driving change in corporate IT infrastructure. Nearly all application development is taking place on mobile platforms. Even if you are not in a consumer business, there is a consumer – corporate or individual – at the end of your supply chain. And, consumers are increasingly enabled by mobile apps.
As access to corporate and personal data extends outward, concerns about data security will heighten. A recent whitepaper by McAfee Corporation concluded, in part, “Fortune Global 2,000 firms [can be divided] into two categories: those that know they’ve been compromised and those that don’t yet know.”
If we don’t know what’s hit us, how can we defend ourselves? And with the advent of “near field communication” between devices in close proximity to one another (enabling, for example, paying with your phone at a checkout counter), as well as mobile banking and electronic medical records, it can’t get better. It can only get worse.
Is your data encrypted? Do you have a contingency plan to guide your company in the event of a data breach?
Typically, data security is owned by a company’s IT department (which may report to the CFO). But the policies relating to data security must be embraced by the entire organization. Last year, a security test at the U.S. Department of Homeland Security resulted in more than 60% of government employees, who found a thumb drive on the ground in the parking lot, plugging it into their computer in the office. Sounds like a much easier way to hack a system than trying to untie the Gordian Knot of firewalls and virtual private networks.
Frequent review and update of your corporate data security policy must be high on your list of New Year’s resolutions for 2013. Every disruptive technology creates new risks. Make sure your IT team is up to date and don’t scrimp on bringing in outside experts to review what you have done.