Q4 Budget Season: What Companies Cut First and What They Protect

Picture a finance chief at a 900-person distributor outside Columbus, Ohio. It is the third week of October, the board meets in three weeks, and the CEO has asked for a 2027 budget that grows revenue and trims operating costs at the same time.

Every department head has sent a wish list. Added together, they are 11% over last year. Her job is to decide which lines get cut first and which ones nobody touches.

She is not alone. Budget season is underway at most calendar-year companies, and the newest CFO surveys show a clear pattern in where the knife is falling.

What are CFOs saying as 2027 budget season opens?

The mood is steady, not giddy. The Duke University CFO Survey, run with the Richmond and Atlanta Fed banks and released Sept. 23, 2026, polled 517 financial executives between Aug. 17 and Sept. 4. Optimism held roughly flat, but small and financially constrained firms grew more cautious.

About 20% of small firms said financial constraints kept them from covering costs or pursuing new business. For large firms, the figure was about 10%.

Deloitte’s third-quarter CFO Signals survey, reported Sept. 30 by CFO Dive, found confidence rising to 6.1 from 5.9. Yet only 53% of CFOs said now is a good time to take greater risks, down from 59% in the second quarter. Cybersecurity topped their list of external risks at 50%.

Put simply: finance leaders expect their own companies to grow, but they are not betting the house on it.

What are companies cutting first?

Three lines keep showing up at the top of the cut list.

1. Headcount growth and HR spending

Gartner’s budget benchmark, published Feb. 10, 2026, surveyed more than 300 CFOs in October 2025 about their 2026 plans. HR took the sharpest pullback: only 29% of CFOs planned increases and 22% expected cuts. Average HR budget growth fell from 2.4% in 2025 to 0.7% in 2026.

Expected headcount growth dropped from 6% to 2%. Gartner analyst Nauman Abbasi called it “a structural pivot from labor expansion to optimization driven by automation and AI.” Those 2026 plans are the baseline most teams are now budgeting against.

2. Equipment and big-ticket capital

The Fed-backed survey’s detailed results show plans to invest in equipment fell about 8 percentage points from the first quarter of 2026, with structures down about 2 points. Among firms with no investment plans, a little over a quarter said they were preserving cash.

3. AI pilots that never grew up

Forrester’s 2027 Budget Planning Guides, released July 15, 2026, tell leaders to cut AI pilots that scale activity without the readiness to back them: no governance, no clear owner, no success criteria and no path to scale.

The message for budget owners is blunt: a pilot now has to show a route to production or lose its line.

What are companies protecting?

The same surveys show where finance teams are holding firm, or spending more.

• Technology. In Gartner’s benchmark, 75% of CFOs planned to raise tech budgets and 48% planned increases of 10% or more. The average increase was about 10%.
• Sales and IT. These two functions were expected to see the largest increases, with 28% of CFOs planning double-digit growth in both. Marketing was close behind.
• The data that AI runs on. Forrester advises more spending on machine-readable, governed company knowledge that AI agents can act on, and on brand visibility inside AI answer engines.

Forrester’s survey of more than 2,600 business and technology decision-makers also found that more than 80% expect budgets to rise over the next 12 months. Among them, 82% of technology decision-makers and 91% of marketers expect increases in 2027.

So the cut list is not about spending less overall. It is about moving money from people-heavy, slow-payback lines toward tools and revenue-facing teams.

How do layoffs fit into budget season this year?

Less than many expected. Challenger, Gray & Christmas reported on Oct. 1, 2026, that employers announced 43,281 job cuts in September, the lowest September total since 2022. Through September, cuts totaled 573,195, down 39% from the same period of 2025.

Market and economic conditions led September’s reasons with 8,789 cuts. For the year, artificial intelligence remained the most-cited reason, tied to 120,136 announced cuts, about 21% of the total.

Hiring is also restrained. Employers announced plans to hire 90,787 workers in September, the lowest September total since 2011. Andy Challenger described the period as “wait-and-see.”

What should executives do before the budget is locked?

The data points to a practical sequence for the next few weeks.

1. Separate growth lines from habit lines. Ask every department which spending ties directly to 2027 revenue. Everything else gets a harder look. Our guide to whether your profit fits your business is a useful lens here.
2. Put a deadline on every AI pilot. Each one needs an owner, a success measure and a date to scale or stop. Before signing new tools, review the AI vendor contract provisions executives should read twice.
3. Budget pay realistically. CFOs in the Fed-backed survey expect average wages to grow 4.3% in 2027. Plan for it rather than discovering it in March. Our earlier look at wage and inflation pressure on business owners covers the tradeoffs.
4. Stress-test the revenue line. CFOs expect 2027 revenue growth of 7.2% on average, but the median is 5.0%. Build the plan on the median and treat the upside as a bonus.
5. Protect the data foundation. Cutting data cleanup across the board can stall the AI projects you are funding. Forrester recommends targeted fixes instead.

Why does the median matter more than the mean?

A few fast-growing firms pull the average up. The median shows what a typical company expects. For 2027, the Fed-backed survey shows a mean revenue forecast of 7.2% and a median of 5.0%, with unit costs expected to rise 4.2%.

That gap is the whole budget fight in two numbers. If revenue lands nearer 5% and costs climb more than 4%, margins get thin fast.

Where does that leave the finance chief in Columbus?

Back to the distributor. Her final draft will likely look like the surveys: flat headcount, a firm line on HR overhead, equipment purchases pushed to the second half, and every AI pilot given a stop date.

What she protects tells the board more than what she cuts. Sales capacity, core technology and clean data stay funded. The 11% gap closes not with one big slash but with dozens of small, defensible choices, each tied to a number she can explain.

Frequently asked questions

When does budget season usually start?

For companies on a calendar fiscal year, annual budget planning typically runs from September through December, with board approval often in November or December. Timelines vary by company size and governance, so check your own planning calendar.

What is the difference between cost cutting and cost optimization?

Cost cutting reduces spending, often across the board. Cost optimization moves money from low-return areas to higher-return ones, so total spending can stay flat or even rise while the mix improves.

Should companies freeze hiring to protect margins?

Not automatically. A blanket freeze can starve revenue teams. Many CFOs are instead slowing headcount growth, filling only roles tied to revenue or critical operations, and using automation where it is proven. Talk to your finance and HR advisors about the right approach for your business.

How much should a company budget for raises in 2027?

CFOs in the Duke CFO Survey expect average wages to grow about 4.3% in 2027. Your number depends on your industry, location and labor market, so benchmark against salary surveys for your sector.

Why are AI pilots being cut if AI spending is rising?

Finance teams are funding AI that reaches production and shows results, while cutting experiments without an owner, a success metric or a plan to scale. The total budget can grow even as weak pilots are shut down.

Sources

• Federal Reserve Bank of Richmond: The CFO Survey press release, Sept. 23, 2026
• Federal Reserve Bank of Richmond: CFO Survey Q3 2026 data and results
• CFO Dive: CFO economic optimism ticks back up in Q3, Deloitte
• Gartner: CFOs' budget plans prioritize growth functions, technology and AI in 2026
• Forrester: 2027 Budget Planning Guides
• Challenger, Gray & Christmas: September 2026 Challenger Report