Despite middel market growth not meeting expectations in 2021, this year should be different, according to the 2022 BDO Middle Market CFO Outlook Survey. In 2021 just 38% of U.S. CFOs report strong financial performance, but 2021, a large number ( 66%) anticipate their business will be thriving one year from now.
While optimism is high, CFOs are still worried about supply chain disruptions, cited as a moderate or significant business risk by 84%.
Additionally, the talent shortage is an issue for (79%), tax reform (79%) and potential COVID-19 resurgences (78%).
ESG an Economic Opportunity
There are also opportunities. 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, in a statement.
“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,” he added.
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.
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.
- 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.
- 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%).
- 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.
