The Middle Market Shows Sluggish Growth, but CFO Optimism Is High Heading into 2022 – BDO Survey

February 2022


CHICAGO, FEBRUARY 16, 2022
 
Survey Highlights:
  • 66% of CFOs expect their business to be thriving a year from now.
  • Supply chain disruptions rank as the #1 business risk.
  • 64% of CFOs believe in the business case for ESG.
  • More CFOs are planning to pursue M&A this year (31%) than in 2021 (24%) or 2020 (25%).
 
CFOs prioritize responsible business amid growth
 
Middle market growth didn’t meet expectations in 2021. According to the 2022 BDO Middle Market CFO Outlook Survey, just 38% of U.S. CFOs report strong financial performance. However, CFOs expect this year to be different: 66% anticipate their business will be thriving one year from now.
 
Their path to growth will not be without hurdles. CFOs are most worried about supply chain disruptions, cited as a moderate or significant business risk by 84%, followed by the talent shortage (79%), tax reform (79%) and potential COVID-19 resurgences (78%).
 
While challenges are evolving, so too are opportunities. CFOs are embracing the new priorities at the forefront of business and stakeholder agendas: impact, purpose and sustainability. Sixty-four percent of respondents believe implementing an environmental, social and governance (ESG) program will improve their long-term financial performance. And although only 36% of CFOs are actively pursuing a sustainability strategy this year, a full 99% have at least one stated ESG objective for 2022.
 
“The next ten years will be driven by a mindset of sustainability and stewardship that prioritizes the needs of all stakeholders while accelerating digital innovation to create lasting business value,” said Wayne Berson, CEO of BDO. “We might not yet know what obstacles lie in our path, but if a higher purpose is our north star, we know a brighter, more prosperous future is ahead — for our businesses, our people, the communities we serve and the planet we share.”
 
CFOs’ plans suggest a spike in M&A
2021 was a hot year for dealmaking, and that trend is likely to continue in 2022. Thirty-one percent of CFOs plan to pursue M&A this year, up from 24% in 2021 and 25% in 2020. The top-cited strategic goal for pursuing transactions in 2022 is enhancing digital capabilities. This tracks with CFOs’ broader business priorities: 53% of CFOs plan to pursue digital transformation this year.
 
Supply chain disruptions are CFOs’ top business threat
With supply chains still in snarls, rising material costs (41%) pose the greatest supply chain-related threat for CFOs, followed by a near-tie between supplier delays (36%), supply shortages (35%) and transportation costs (35%). Focused on optimizing inventory levels for greater resilience, CFOs rank accurate demand and inventory management as their top supply chain priority for this year.
 
CFOs double down on talent retention
As workers leave their jobs at historic rates, CFOs’ top-cited workforce challenge is retaining key talent (42%), followed by attracting new talent (39%). Every CFO bar one has planned investments to address these and other workforce challenges this year. Chief among them are investing in flexible work arrangements (42%) and increasing compensation (40%).
 
Collaboration is the top innovation strategy in 2022
This year, companies are prioritizing innovation, and they’re relying on partnerships to do it. When asked about their approach to innovation, the top-cited strategy was collaborating for greater network value (48%). Furthermore, one in four CFOs intend to pursue a joint venture in 2022.
 
To see additional results from the 2022 BDO Middle Market CFO Outlook Survey, download the full report here: https://insights.bdo.com/cfo-survey
 
Explore individual sector expectations in BDO’s six industry CFO reports: 
 
  • Energy: This year, energy companies expect to confront challenges around capital access, cybersecurity and supply chains. They’re also capitalizing on new opportunities: ESG is the #1 area where CFOs are increasing investment, and they’re prioritizing M&A as their primary source for capital infusion. Looking ahead, energy CFOs plan to reimagine business models for sustainability and financial stability.
 
  • Healthcare: Healthcare CFOs are optimistic about 2022: 82% expect their business to be thriving in one year. But serious risks lie ahead that could threaten the financial stability of the industry. Labor shortages, supply chain disruptions and debt obligations are adding strain to the healthcare system. At the same time, Provider Relief Fund (PRF) reporting is coming due, and some funds may need to be paid back, which could compound healthcare’s problems.
 
  • Life Sciences: CFOs are amping up tech investments to de-risk the drug development process and pursuing collaborations to power their growth. They aren’t overlooking risk, however: 82% of life sciences CFOs cite supply chain disruption as a risk to their business, second only to the ongoing talent shortage (85%).
 
  • Manufacturing: Manufacturing CFOs will focus on three key areas in 2022: rethinking their supply chains, investing in innovation and preparing for global tax changes. To address these strategic priorities, more than half of respondents are looking at adding alternate or backup suppliers this year, and 68% plan to pursue Industry 4.0.
 
  • Retail: Retail CFOs are grappling with ongoing supply chain delays, labor shortages and rising prices. In response to these disruptions, 55% percent of retailers plan to raise prices in 2022 and 38% already have. Looking ahead, retailers are pursuing innovation, rethinking their supply chain, offering new labor incentives and digitizing their business to accelerate growth.
 
  • Technology: Technology firms have ambitious growth targets, with 40% expecting to increase revenues by double digits. However, the industry faces significant stakeholder pressure and regulatory scrutiny: Respondents report trust issues with service reliability (60%) and data protection (59%), and over a third (38%) say they need to strengthen trust in their overall company.
 
The 2022 BDO Middle Market CFO Outlook Survey is a survey of 600 middle market CFOs in the U.S. The survey was conducted by Rabin Research Company, an independent market research firm, in October 2021.
 
About BDO USA
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax and advisory services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of skilled and committed professionals. The firm serves clients through more than 70 offices and over 750 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multinational clients through a global network of more than 97,000 people working out of over 1,700 offices across 167 countries.
 
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information, please visit: www.bdo.com.
 
Contacts
Rebeca Berger
[email protected]
212-600-2587