Despite ongoing economic uncertainty in 2024, recent data from the National Center for the Middle Market at Ohio State University shows the middle market remains resilient and continues to experience robust growth, offering valuable insights for companies across industries. Some statistics worth noting are:
- YOY (2023-2024) midyear revenue growth of 12.9% and employment growth of 10.3%.
- 75% of middle market companies reporting improvement in financial performance.
- Post pandemic revenue growth after Q4 2021 has averaged 7.3%.
- Estimated growth rates for 2025 are 8.8% for revenue and 9.5% for employment.
Clearly these averages don’t mean the same for all industries such as construction, manufacturing, and retail having negative effects from high interest rates. With the recent reduction in Fed rates, these industries are now more optimistic for Q4 2024 and 2025.
The key challenges that middle market leaders are concerned about and planning to minimize impact on their companies are:
- Inflation; will it continue to decline as a percentage of GDP?
- Retaining employees; will labor cost growth rates mitigate?
- Political uncertainty driving tax increases, tariffs, and employment law changes.
- The impact of technology, AI, and competitors getting a competitive advantage through capital investment.
- Regulatory compliance at both federal and local levels.
In response to these challenges, middle market companies are investing in technology and people. Companies are investing in new products, plants, and equipment while minimizing additional debt. 47% introduced a new product of service while 26% also added new equipment and facilities. These investments were focused on:
- Personnel acquisition and training at 34%.
- IT and new equipment at 38%.
- New facilities at 15%.
Given that these statistics reflect the overall US market, take a look at what you are seeing in your market as a comparison. Recent Colorado average pay rate increases have declined to 4.7% from a previous 5.5%, indicating reduced inflationary trends. Next steps that we recommend for you are to:
- Examine how your company is performing against a plan (annual budget) YTD and ask if performance can improve. This is a key question even when you are doing well.
- Look at how your market may change in the next 18-24 months and consider if maintaining status quo will be the best strategy.
- Set three plans for the next 12-18 months based on these scenarios: a revenue decline of 15%; revenue steady and margin decline 10%; and revenue increase of 10% and margins sustainable.
These scenario exercises can help you understand the uncertainty impact to your present plan and define where a strategy pivot might be necessary. Being prepared gives you a competitive advantage over others who base their strategy on hope!
C Squared Solutions provides interim or fractional CFOs, COOs, and CEO advisors in nearly all industries. We mentor and advise private companies frequently through sophisticated and experienced management advisory. Give us a call or visit our website for more information and details. We have been there and done that through serving more than one hundred companies, 250 years of combined experience, and having sold our companies totaling more than $500 million!
