More than a decade of research by the National Center for the Middle Market (NCMM) reveals that middle market organizations prioritize development and consistently surpass smaller and larger businesses in both revenue and employment growth rates. While there are many growth drivers that NCMM has studied over the years, in their latest study, they take an in-depth look at growth drivers related to people, risk management, and technology, along with key themes related to the current state, best practices, and challenges in each of these areas. Notably, fractional CFOs are emerging as valuable strategic partners in addressing these challenges and driving sustained growth.
Talent Acquisition/Hiring the Right People
High-growth middle market companies are nearly two times more likely to assert that their people are a key differentiator in their success due to the innovation and creative solutions that they develop. These businesses’ commitment to their employees supports the sustained growth they are seeing. Nearly nine out of 10 (88 percent) of these same companies affirm that they offer “Extremely/Very Competitive” rewards packages to entice and retain employees.
However, 57 percent of high-growth companies struggle to sustain offering these competitive benefits. This challenge is not unique to high-growth companies, as 47 percent of average-growth companies face similar issues. Additionally, 56 percent of high-growth and 52 percent of average-growth companies report difficulties in finding quality talent, and 55 percent of high-growth and 49 percent of average-growth companies struggle to retain employees.
To sustain their superior growth trajectory, companies must evaluate the complexities of maintaining competitive compensation, sourcing high-quality talent, and ensuring that employee engagement remains high. Fractional CFOs can play a critical role here by leveraging their financial expertise to design sustainable rewards programs, forecast workforce costs (including the hidden but real costs of employee turnover), and implement strategies to optimize payroll budgets without compromising profitability. Their insights can help align talent acquisition and retention efforts with broader business objectives, creating a competitive edge.
Risk Management
In parallel, the risk capital and technology landscape presents its own set of formidable challenges, most notably in cybersecurity. As companies expand, the risk associated with cybersecurity breaches grows, with 70 percent of high-growth companies having already experienced such incidents. The impact of these breaches can be severe, highlighting a reactive approach to risk management that predominates in the middle market sector. Many organizations strengthen their risk management frameworks only after experiencing a breach.
With 89 percent of middle market firms acknowledging cybersecurity as a substantial challenge, there is a clear imperative to transition from reactive to proactive strategies, thereby safeguarding their business operations against future threats. Fractional CFOs (aka outsourced CFOs), with their expertise in financial risk management, can help companies develop forward-looking risk mitigation strategies. By aligning budgets with cybersecurity priorities and ensuring investments are made in the right technologies, they can help businesses protect their assets while maintaining financial stability.
Fractional CFOs as Growth Catalysts
Fractional CFOs are uniquely positioned to address the broader challenges middle market companies face as they grow, including operational inefficiencies, regulatory hurdles, and competitive pressures. Their ability to offer high-level financial oversight without the cost of a full-time executive makes them an attractive option for growing firms. They provide actionable insights by:
Leveraging Data: Fractional CFOs can analyze key financial metrics to identify growth opportunities, optimize resource allocation, and improve decision-making.
Driving Efficiency: By streamlining processes and eliminating redundancies, fractional CFOs help improve cash flow management and profitability.
Supporting Strategic Planning: They bring expertise in mergers, acquisitions, and strategic partnerships, ensuring businesses can seize opportunities for expansion without unnecessary risk.
Key Report Insights
People are the differentiator for high-growth companies.
Although most middle market companies perceive their teams as above average, those experiencing rapid growth truly recognize their people as their distinguishing asset. Fractional CFOs can ensure that investments in talent align with long-term financial strategies.
Sustaining and nurturing talent presents a variety of challenges.
Effective workforce management is vital for development, yet finding exceptional talent can be difficult regardless of speed of growth. Fractional CFOs can help evaluate total rewards packages, ensuring they are both competitive and financially sustainable.
Workforce-related challenges are managed by engaging workforce improvement efforts.
Middle market companies tackle workforce challenges by refining their total rewards packages. Fractional CFOs provide the financial insights needed to adjust these offerings based on employee expectations and market conditions.
Cybersecurity risk escalates as companies grow, and organizations often address it too late.
Fractional CFOs can allocate resources effectively to build proactive risk management frameworks, ensuring investments in cybersecurity tools and training are both timely and cost-efficient.
The evolving risk landscape for growing companies demands an anticipatory approach to risk management.
Companies face a range of risks beyond cybersecurity. Fractional CFOs can provide financial models and forecasts to prepare for operational, regulatory, and market risks, reducing exposure and ensuring resilience.
The emergence of artificial intelligence is an exciting yet evolving opportunity.
Middle market organizations are leaders in leveraging AI. Fractional CFOs can assess the ROI of AI investments, ensuring they drive efficiency and innovation while mitigating associated risks.
By incorporating fractional CFOs into their growth strategies, middle market companies can navigate challenges with confidence, ensuring sustained success in an increasingly complex and competitive business environment.
If you are a business owner or CEO within the San Francisco Bay Area and Silicon Valley, in need of an experienced fractional or outsourced CFO to help your company control costs, increase profit margins, improve cash flow as well as identify strategic growth opportunities, our highly skilled outsourced CFO services provide direct access to high-quality expertise in a cost-effective manner.
Comments