Middle-market companies are not lacking confidence right now, but when growth requires an immediate increase in costs, many leaders hesitate to go all in. According to recent survey data from CBIZ and The Ohio State University’s National Center for the Middle Market (NCMM), 61% of companies move forward cautiously, while only 32% fully commit.
This disparity underscores that growth decisions are seldom a matter of whether to invest, but rather how and when to invest. Scenario planning is increasingly essential, not only for forecasting outcomes but also for fostering confidence among stakeholders.
Assessing Investment Timing
When confronted with growth opportunities that demand significant upfront investment, companies must evaluate both the actual cost of capital and the associated opportunity costs. The choice between utilizing cash, debt, or equity can have varied short- and long-term implications. Without a comprehensive understanding of capital costs, projected returns may not accurately reflect the true business impact.
Opportunity costs manifest in two primary forms:
- Cost of Waiting: Delaying investments may result in missed market share or lost opportunities amid favorable economic conditions.
- Cost of Prioritizing: Committing resources to a single initiative could preclude other investments and delay essential capital expenditures.
By carefully considering these factors, companies can determine whether to proceed with immediate action or implement phased growth strategies.
Balancing Growth and Profitability
The survey found that more leaders prioritize profitability over growth (47% vs. 40%), a trend that aligns closely with how middle market companies operate.
Since most middle-market businesses are valued based on EBITDA multiples, a strong emphasis will always be placed on profitability. While top-line growth remains important, it is rare for companies to knowingly sacrifice margins. Margin erosion can be difficult to recover and can directly impact valuation.
This dynamic shifts how decisions are made. Instead of focusing on short-term revenue gains, companies regularly assess multi-year returns on investment. Looking beyond the current planning cycle helps ensure that near-term decisions support longer-term value creation.
Prioritizing Cost Management
In times of rapid cost reduction, companies prioritize maintaining operational continuity and revenue generation. Investments supporting customer service and core operations are preserved, while non-essential expenditures, such as new hires, incentive compensation, deferred maintenance, and extended payment terms, are subject to reductions.
Each cost-management lever must be evaluated for both immediate and future impact before implementation. A near-term cash benefit can easily result in long-term profitability regression without proper planning.
The Role of FP&A
Financial planning & analysis teams play an integral role in bringing structure and clarity to these decisions. The adoption of cross-functional planning processes enables alignment among finance, operations, and business units, builds accountability, and ensures decisions reflect organizational priorities.
Advancements in automation and business intelligence tools have further enhanced data accessibility and transparency, supporting performance management and informed decision-making.
Beyond this, organizations are increasingly focusing on multi-year planning exercises. Regular updates to long-term financial models can provide insight into how current actions may affect future performance and ensure strategic alignment across initiatives.
Although improving, companies still face challenges with cash flow modeling practices. In many cases, this remains a reactive exercise rather than a proactive one. This can create risk, especially for highly leveraged businesses, where debt service can quickly strain cash flow. Without a clear understanding of how decision-making impacts your cash position, the wrong path can easily be pursued.
Next Steps
If you’re evaluating growth opportunities, managing cost pressures, or looking to strengthen your planning process, CBIZ’s Strategic Financial Planning & Analysis team can help you move forward with greater clarity and confidence.
Connect with our team to build more effective models, improve decision-making, and align your strategy with long-term performance goals.
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