CFOs are more optimistic about U.S. economic growth than they were a year ago and expect their companies’ sales to increase in 2014, with growth coming from doing more business with current customers and winning new customers, according to the Bank of America Merrill Lynch 2014 CFO Outlook survey. Nine out of ten CFOs said they expect their companies to increase or maintain the size of their workforce next year.

Amid this optimism, concerns remain about healthcare costs, which CFOs cited as having the biggest potential impact on the U.S. economy. Yet, most CFOs said their companies are mostly or completely ready to comply with the Affordable Care Act.

Of the financial executives who participated in the annual survey of middle market companies, 54 percent said their companies’ 2014 sales will be higher than in 2013. Another 37 percent expect sales to remain at the same level, while 8 percent expect a decline. Related to those expectations, 94 percent of CFOs said their companies plan to implement at least one growth strategy in 2014. Of those CFOs, 82 percent expect to sell more products or services to current customers, while 77 percent are targeting new customers or markets.

“Middle-market companies are increasingly exploring different paths to growth, from creating deeper relationships with existing customers to entering new markets that have great potential,” said Alastair Borthwick, head of Global Commercial Banking at Bank of America Merrill Lynch. “The CFO Outlook mirrors what we’ve heard in conversations with our clients: With the right strategy and financial partner, 2014 can bring more opportunities for expansion and success.”

When asked about potential negative impacts on the U.S. economy, CFOs most often named healthcare costs, with 67 percent ranking it as a significant concern. That was followed by the effectiveness of the U.S. government (62 percent) and the U.S. budget deficit (57 percent).

Despite concerns about healthcare costs, nearly three-fourths of CFOs said their companies are completely or mostly ready to comply with the rules and regulations of the Affordable Care Act, with 28 percent saying they are completely ready and 46 percent mostly ready.

Fifty-three percent of executives said their companies’ labor costs will increase as they comply with the Affordable Care Act, with 77 percent of those CFOs saying their companies will increase healthcare costs per employee to offset those costs. Other measures to offset higher labor costs include cutting spending in other areas of their business (75 percent), implementing preventative healthcare programs (71 percent) and raising prices on products and services (63 percent).

Economic and International Activity

CFOs gave the U.S. economy an average score of 53 out of 100, up from 49 a year ago; in the 2013 CFO Outlook Mid-Year Update – a smaller survey with 250 respondents – the score was 58. CFOs gave the global economy a score of 50, up from 45 a year ago and comparable to the mid-year score of 51.

Regarding economic growth, 47 percent expect expansion in 2014, up from 39 percent a year ago. In the mid-year update, 55 percent forecast growth. Only 12 percent said they expect the economy to shrink, down from 24 percent a year ago and similar to 10 percent at mid-year.

U.S. companies continue to remain active globally, with more than half of CFOs saying their companies do business in non-U.S. markets. Among those companies doing business internationally, just over half generate more than 10 percent of their revenues from international sales or operations, and more than 90 percent of CFOs said their revenues from international sales or operations will increase or remain the same in 2014.

“We have seen middle market companies across the U.S. continue to pursue opportunities in other countries,” Borthwick said. “Whether it’s opening a new facility, acquiring a company or selling products into a new market, doing business globally can be challenging. CFOs recognize this and are looking for financial solutions that help their companies increase efficiency, access capital and manage risk.”

Other Key Findings

CFOs remain optimistic about avoiding personnel cuts, with only 7 percent projecting layoffs for full-time employees. By comparison, 47 percent expect to hire additional employees, and 43 percent forecast no changes to the size of their workforce. Those numbers all are comparable to the mid-year survey.

Other Notable Findings in the 2014 CFO Outlook:

•  Nearly two-thirds of CFOs said their companies will comply with the requirements of the Affordable Care Act by keeping their existing healthcare plans. Thirteen percent expect to offer a slimmed-down version of current benefits and shift more costs to employees, and 11 percent expect to increase the deductibles associated with their existing healthcare plans.
•  Regarding capital expenditures, 43 percent of CFOs expect those to remain steady at their companies, while 34 percent expect to spend more and 21 percent forecast less spending.
•  On personnel, 37 percent of CFOs expect their companies to outsource work to contract employees in 2014. The top reasons for outsourcing were insufficient availability of qualified workers (39 percent) and uncertainty about rising healthcare and insurance costs (27 percent).
•  One-fourth of CFOs said they expect their company to acquire another company. Of those executives, most expect to acquire a competitor vs. a supplier or distributor.
•  Research and development budgets are expected to remain stable, with 19 percent expecting an increase in expenses and 8 percent expecting a decline.

Since 1998, Bank of America Merrill Lynch has regularly surveyed financial officers at U.S. companies to better understand how they view the economy. The 2014 CFO Outlook was conducted by Granite Research Consulting, which interviewed 751 CFOs, finance directors and other executives selected randomly from U.S. companies with annual revenues between $25 million and $2 billion. Interviews were conducted from late September to early November 2013. The margin of error is +/-4 percent. The full report will be available in early 2014.