Despite Economic Pressures, Middle Market CFOs See 2023 as a Year of Opportunity and Resilience ? BDO Survey
Survey Highlights:
- Nearly half of middle market CFOs predict double-digit growth this year.
- For the second year in a row, CFOs ranked supply chain disruption as the #1 business risk.
- The number of CFOs planning an acquisition has halved, down from 31% in 2022 to 16% in 2023.
- 41% of CFOs plan to pursue an ESG strategy over the coming year.
- 20% of CFOs say a talent shortage poses a significant threat to their businesses, down from 38% in 2022.
Middle market sees growth amid uncertainty
BDO USA's 2023 Middle Market CFO Outlook Survey found that nearly half (47%) of middle market CFOs predict double-digit growth in 2023, up from 32% one year before. These projections follow an unexpectedly strong 2022, in which 79% of companies surveyed saw revenue and profitability growth. Despite historic volatility, CFOs see opportunity in the year ahead.
This optimism is tempered by the threat of new and familiar risks. For the second year in a row, CFOs cite supply chain disruption as their top business risk, followed closely by economic volatility and geopolitical disruption. In light of these risks, middle market CFOs are prioritizing resilience; most plan to maintain or increase their investments in key areas like ESG and workplace technology, even if economic conditions worsen.
"Middle market CFOs are focused on the future, leaning into their mandate to foster sustainable growth," said Wayne Berson, CEO of BDO USA. "To make the most of a slowing economy, this means leaning into the principles of strategic resilience and making smart investments to bolster operations while also empowering your people."
CFOs are building resilience to overcome volatility
To weather uncertainty in 2023, middle market CFOs' top strategies are ESG and cost optimization. Thirty-eight percent of CFOs say ESG investments have improved their organizational resilience, an indication that business leaders see sustainable business practices as a means to achieve stability in difficult times.
ESG is becoming a key component of business strategy
From greater business resilience to strengthened recruiting and retention, CFOs are realizing the benefits of ESG go far beyond improved ratings. Forty-one percent of CFOs plan to pursue ESG strategies over the coming year, and the vast majority (79%) will keep or maintain these investments even if economic conditions worsen.
CFOs are investing in their employees
Despite high competition for talent and low unemployment rates, only 20% of middle market CFOs say a talent shortage poses a significant risk to their business this year, down from 38% in 2022. Many companies are no longer focused on hiring; instead, they are investing in their current workforce by directing resources toward increased training opportunities, including initiatives to upskill and re-skill employees.
Dealmaking is down, but not out
Although only 16% of CFOs plan to pursue an acquisition in 2023, down from 31% last year, overall interest in dealmaking activity remains robust. Thirty-one percent of CFOs are considering a sale to a strategic buyer or competitor, while nearly one-quarter (24%) expressed interest in private equity or venture capital investment.
CFOs seek clarity on evolving tax policy
New legislation like the Inflation Reduction Act (IRA) is driving concern among CFOs about the implications of tax policy changes on their businesses. Sixty-five percent of CFOs consider additional tax reform a business risk over the coming year ? a majority, though less than the 79% who said the same last year.
To dive deeper into the 2023 BDO Middle Market CFO Outlook Survey, download the full report here: https://insights.bdo.com/2023-BDO-CFO-Outlook-Survey.html
Explore industry-specific trends in BDO's six industry CFO reports:
- Energy: Sixty-eight percent of energy companies reported both revenue and profitability growth in 2022, a trend they expect to continue this year. With easier access to borrowing options, they are also exploring opportunities for investment. The IRA created $369 billion of new energy and climate-related spending; as a result, 90% of energy CFOs say they plan to take advantage of changes to credits and incentives to optimize their total tax liability and invest in renewable energy projects and ESG strategies.
- Healthcare: The healthcare sector is on the mend, but progress is uneven. To gain stronger financial footing, healthcare organizations are exploring deals, with 22% planning a sale and 32% planning a purchase. At the same time, healthcare CFOs are reprioritizing their digital investments to meet evolving patient expectations and secure greater loyalty in the year ahead.
- Life Sciences: Life sciences CFOs are entering 2023 with strong revenue and profitability, but they are facing increasing pressure from investors: 99% have experienced a change in their relationship with investors. To accelerate development timelines and gain access to resources, CFOs are planning licensing collaboration agreements (45%); M&A is also on the agenda ? if buyers and sellers can agree on a price.
- Manufacturing: Supply chain disruption and economic uncertainty are motivating manufacturing CFOs to invest in resilience, including Industry 4.0 initiatives (36%), supply chain visibility (42%) and M&A (38%). Although the chip shortage has forced some companies to delay Industry 4.0 investments, CFOs expect some of these effects to ease over the coming year.
- Retail: Retail CFOs are feeling cautiously optimistic despite inflation and ongoing supply chain issues. To prepare for a potential recession, nearly half (49%) of retailers are reducing overall inventory. They are also leaning into technology and select digital investments to address ongoing issues and prepare for the uncertainty that lies ahead.
- Technology: Despite economic headwinds, plummeting valuations and widespread layoffs in 2022, tech CFOs remain bullish, with 80% anticipating increased revenues in 2023. Tech CFOs' priorities include developing resilient business strategies to weather the current economy, creating new opportunities for growth and building stakeholder trust in their companies.
The 2023 BDO Middle Market CFO Outlook Survey is a survey of 625 middle market CFOs in the U.S. The survey was conducted by Rabin Research Company, an independent market research firm, in October 2022.
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