According to the recent RSM Q4 2023 Middle Market Business Index survey, the U.S. is now in a period of higher interest rates aimed at combating elevated inflation, affecting the growth of 58.9 percent of surveyed middle market business owners. Heightened inflation continues to be a primary concern across all industries, indicating the widespread impact of economic challenges. The Federal Reserve's actions to address inflation through interest rate hikes will likely influence owners' growth perspectives in 2024.
Amid economic volatility, middle market business owners are increasingly focusing on building robust leadership and advisor teams. Many CEOs are leveraging the expertise of chief financial officers (CFOs) and lawyers to assist with critical business decisions. Establishing a broad network of specialized business professionals helps owners navigate specific decisions and ensure the long-term success of the company.
Looking ahead, capital investment is expected to play a critical role in CEOs' operational and growth initiatives over the next 12 months. About 56.3 percent of business owners identified capital investment as the most valuable resource for supporting primary operational initiatives. While organic growth measures are favored, inorganic growth practices, such as mergers and acquisitions (M&A), remain strategic options. However, only 13.6 percent of surveyed business owners plan to engage in a sell-side acquisition, influenced by muted M&A valuations.
In 2023, 26.4 percent of CEOs surveyed haven't started planning a business exit, highlighting the demand for professional advisory services. Succession planning is closely tied to annual revenue and profitability, with smaller companies generally planning ownership transfer to family and larger companies opting for transfer to business partners.
The CEOs' industry outlook is strongly correlated with year-over-year revenue growth. The majority of owners across industries forecast revenue increases for 2024, demonstrating a positive industry outlook.
The survey also showed the transition to remote and hybrid work, initiated by the COVID-19 pandemic, has evolved into a permanent arrangement for some middle market companies, and that retaining staff in a competitive labor market with low unemployment continues to pose challenges.
Various forms of flexible work models are prevalent, with 27 percent of executives surveyed in the fourth-quarter MMBI survey indicating the availability of remote work options, ranging from fully off-site to structured hybrid. Among the surveyed executives, 71 percent mentioned that their firms either require all full-time work to be on-site with no specific policy or offer an alternative. Smaller midsize firms, with annual revenues of $10 million to $50 million, exhibit a higher percentage (33 percent) allowing remote work.
Among respondents with established flexible work models, 60 percent reported a positive impact on their organization's culture, marking a change from 39 percent a year ago. Twenty-four percent stated a neutral effect, while only 16 percent cited a negative impact. The most significant downside was reduced collaboration, with 35 percent of companies with remote work arrangements noting a major negative impact, and an additional 36 percent indicating a minor negative contribution.
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