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Middle Market Companies Report a Strong Finish to 2021 with Record Year-Over-Year Revenue

According to a recent survey from the National Center for the Middle Market, the middle market’s recovery from the performance lows of 2020 was well underway by mid 2021, and it accelerated in the second half of the year. As a part of our fractional CFO services in the San Francisco Bay Area, we also have noticed similar trends in the SMB (Small- and Medium-Sized Businesses) segments across both tech and non-tech industries.


At year-end, the vast majority of middle market businesses reported year-over-year performance improvements. Nearly four out of five businesses reported year-over-year revenue gains while 57 percent of middle market businesses expanded the size of their workforce. Among those reporting growth, a significant majority reported gains of 10 percent or more over the course of the year.


New products and services and expansion into new domestic markets are fueling the growth as economic confidence remains high and investment appetites to continue to inch up. While COVID-19 related concerns linger for some businesses, the bigger challenges revolve around growth and talent, specifically IT capabilities and the ability to recruit and hire people with the necessary skills for available jobs. Despite these headwinds, predictions for 2022 are strong with most companies expecting continued healthy revenue and employment growth over the next 12 months.


Fully two-thirds of middle market businesses (67 percent) believe that their companies are currently in a better position than they were before the pandemic began. This sentiment is fueled by strong performance throughout 2021. By mid-year, many middle market companies were showing signs of significant recovery from the setbacks experienced in 2020, and by the close of 2021, nearly all middle market businesses have joined in the recovery. Approximately three-quarters (73 percent) of companies say business has improved compared to one year ago while just 7 percent report a decline in overall company performance over the past 12 months.


Collectively, middle market companies posted their highest ever year-over-year revenue and employment growth rates. The year closed with strong economic confidence levels (albeit somewhat off their all-time highs) coupled with predictions for continued robust growth in 2022. Between December 2020 and December 2021, the middle market experienced revenue growth of 12.3 percent, nearly double the historical average. These strong numbers result from more than three-quarters of companies reporting year-over-year revenue increases with more than half (56 percent) of these growing businesses reporting growth of 10 percent or more while just one in 10 companies reported declining revenues for the year.


Renewed expansionary activity, including a surge in the introduction of new products and services as well as increased entry into new domestic markets, have been key to the growth story. While companies across all revenue bands and in all industries experienced growth, those in the financial services and retail trade sectors posted the strongest numbers. To support the rapid increase in business activity in 2021, middle market companies have needed more people. Overall year-over-year middle market employment surged by 10.8 percent, well above the historical average annual employment growth rate of 4.1 percent. More than half (57 percent) of companies increased the size of their workforces with most growing employment by 10 percent or more. However, nearly three in 10 companies say they still do not have enough people to respond to current market conditions. Healthcare and construction businesses have the greatest employment needs with half of all healthcare companies saying they do not currently have enough staff. Regardless of industry, virtually every middle market company (96 percent) reports experiencing at least some degree of difficulty finding and hiring people with the right skills for their available jobs—and half of companies describe these challenges as significant.


Nevertheless, executives foresee even more expansion on the horizon with both revenue and employment growth expected to remain high throughout 2022. Two-thirds of companies believe revenue will continue to increase in 2022, however at the slightly slower pace of 9.9 percent.


Well over half (58 percent) of businesses have plans to continue aggressively hiring at nearly the same pace (10.3 percent) as they did in 2021. To realize these forecasts, leaders will need to navigate through the labor shortage, skills gaps, and the need for a more digitally savvy workforce. Currently, companies are relying more heavily on the employees they do have, asking staff to work more hours and more shifts. Some businesses are also outsourcing or bringing in outside consultants to help manage the workload. IT and technology challenges present formidable headwinds to growth as well with 40 percent of companies reporting a digital skills gap and 66 percent of these companies saying that the gap is affecting performance either by slowing growth or leaving improvement opportunities untapped.


Even as talent and technology concerns mount, concerns related to the government and economy diminish. While confidence levels have cooled some from this significant spike seen six months ago, they remain strong and above five-year averages. Investment appetites continue their gradual rebound as well with IT and more personnel cited as the leading destinations for investments dollars as companies look to grow their teams and technical capabilities to keep up with demand. While two out of five executives continue to say they would hold onto an extra dollar as opposed to put it to work immediately, most of these savers have future investments in mind. The inclination to stockpile cash, which spiked during the pandemic, continues to lessen.

If you are a business owner or CEO within the San Francisco Bay Area or Silicon Valley, in need of an experienced fractional CFO to help your company identify opportunity and improve operational processes, cash flow, accounting and billing process management, as well as profit margins, our highly skilled outsourced CFO services provide direct access to high-quality expertise in a cost-effective manner.


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