Middle-market CFOs had high hopes for stability in 2024, but the latest survey by BDO finds that hope may be unfounded. Two-thirds of about 600 middle market CFOs surveyed by the assurance, accounting, and advisory firm said economic volatility poses as great or greater a risk this year as in 2023, according to an early release of the results provided to CFO.
And 2023 was a tough year for many. For example, 83% anticipated yearly revenue increases in 2023, but only 61% hit that goal. Thanks to continued uncertainty around interest rates, inflation, geopolitics, and the upcoming presidential election, these CFOs expect modest revenue and profit growth in 2024.
“Many CFOs are coming off a worse-than-expected 2023; I don't think anyone expected it to be as hard as it was,” Wayne Berson, the chief executive of BDO USA and chair of the global board of directors of BDO International, told CFO.
With the stock market rising up and up, the temptation is to think everything’s good, said Berson. The tenets of running a successful business haven’t changed, but CFOs “have to be able to withstand the pressure of working in this environment,” he said.
While the BDO survey explored growth-oriented, value-driven actions mid-market firms might take in 2024, it importantly addressed a nagging pain point in a tight labor market: the lack of an adequately skilled workforce and insufficient strategies for retaining talent.
Despite all the risks that could take up a CFO’s time this year, the BDO survey found that 36% of respondents said their involvement in strategic conversations related to workforce strategy will increase in the next 12 months.
“The pressure on the CFO today is so high that they need people to deliver the numbers.”
CEO, BDO USA
The top anticipated workforce changes by CFOs included increasing monetary compensation (36%), increasing upskilling or re-skilling (36%), investing in remote work/hybrid work technologies (32%), and enhancing nonmonetary employee benefits (29%).
Low unemployment still means relatively high turnover and insufficient people to do the job at mid-market businesses. High turnover, in part, has to do with changing attitudes about work — how people are looking at the post-COVID world and the remote work environment, said Berson.
“I think CFOs at all sizes of companies in America are prioritizing, retaining the right talent by investing in people,” said Berson, which could cause increases in monetary and nonmonetary compensation rivaling 2023.
But middle market firms are also under pressure to cost-optimize the workforce. About a third of middle-market CFOs said they would conduct layoffs this year, searching for the right mix of talent to support business goals. And 36% plan to outsource or co-source work.
“The pressure on the CFO today is so high that they need people to deliver the numbers,” Berson said. “The only way some will be able to do that is to go outside [the country].” But CFOs will be on a short leash to deliver results with that strategy, Berson said.
The AI Rush
The other route to workforce optimization is leveraging automation and artificial intelligence, which 42% of the responding CFOs said they would be doing.
Nearly half of the CFOs in the BDO survey said their organization had formalized or was in the process of formalizing a policy around generative AI (GenAI), and 39% were building proprietary GenAI platforms.
Every successful CFO is looking at this area, Berson said. “They all know that there's a limited amount of costs they can have in their operations.”
But he cautioned against jumping into GenAI without a strategy. There’s no consensus yet on the best use cases. “Our feeling is middle market companies should be treating AI just like any other new technology,” Berson said. That is, determining the business case and focusing on the value versus “rushing to adopt the technology out of fear of missing out.”
“The strategy should drive the ultimate decision on where to innovate as a method to achieve goals,” Berson said.
While there are plenty of other organizational risks mentioned in the BDO survey, including data privacy, supply chains, ESG, and tax legislation changes, Berson cited a risk specific to CFOs as they play a wider, more strategic role in their company.
“The biggest risk I see for CFOs today is thinking that because their companies have done well, “they are geniuses in their job,” Berson said. But in 2024, “the economic headwinds out there are certainly very, very strong, and many CFOs haven't dealt with them before.”
The BDO survey was conducted in October 2023. Respondents’ companies had revenues ranging from under $50 million to over $3 billion, with 46% under $1 billion. Companies with only U.S. operations constituted 80% of the group.