The middle market is made up of nearly 400,000 businesses with annual revenue ranging from $5 million to $1 billion. It comprises 1/3 of the total U.S. private sector GDP and accounts for 1/3 of the private sector jobs. If the U.S. middle market were a country, its GDP would rank as the 4th largest economy in the world. A full 50% of middle market firms have annual revenue between $5 and $10 million, another 42% between $10 and $50 million, and only 2% exceed $100 million per year in revenue. In contrast, there are nearly 5 million companies with less than $1 million per year in revenue, another 1 million companies between $1 and $5 million, and at the high-end, there are less than 3000 companies with annual revenues in excess of $1 billion.
The Importance of the Chief Financial Officer’s Role
The accounting and finance requirements of middle market companies are often far more complex and challenging than the small businesses as which most of them started. Accelerated growth rates require accurate cash flow forecasts, timely and detailed financial reporting, sophisticated financing arrangements, complex accounting including mergers and acquisitions, critical strategic decision support and the ability to recognize and adapt to a constantly changing set of threats and opportunities. It can also put a lot of stress on a middle market company’s IT and HR infrastructure. In many ways, the CFO role is even more challenging at middle market companies than larger corporations where the growth rate, capital structure and strategy are more stable and the larger staff allows for greater separation of responsibilities. Still, many middle market companies underestimate the importance of solid financial leadership in their organization. As a result, companies with successful products and services underachieve or even fail due to poorly forecasted working capital requirements or misunderstood cost/benefit analysis, and even successful companies ‘leave money on the table’ that would have easily covered the additional investment in an experienced CFO, particularly when mergers or acquisitions are involved.
This blog is intended for financial and non-financial executives of middle market companies to assist in the dissemination of information regarding the role of the CFO in middle market businesses.
The Middle Market CFO 