Table of ContentsPIVOT TO NEW POTENTIAL3WHAT’S NEXT FOR GROWTH5WHAT’S NEXT FOR WORK9WHAT’S NEXT FOR RISK12RESPONDENT PROFILE18View the survey results by industry:EnergyHealthcareLife SciencesManufacturingRetailTechnology

2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEY / 3Pivot to New PotentialThe global pandemic forced a critical reflection period across every business,and the middle market made the most of it.While the impacts of the public health and economic crisis affected every industrydifferently—leading to unexpected surges for some and steep declines in demandfor others —there was a common purpose in response. A desire not just for a returnto the previous normal but for a renaissance.From protecting their workforces, to rethinking strategy, to preserving revenues andseeking relief to ensure stability, companies took action and took charge of their plansfor resilience.The crisis put everything into a new perspective. Middle market CFOs reconsideredwhat is truly essential and discovered new areas of opportunity. Long term plans wereaccelerated by necessity, and businesses took advantage of newfound clarity to gobeyond business as usual and aimed to create something better than usual.The 2021 BDO Middle MarketCFO Outlook Survey of 600CFOs found that companiesare ready to turn the page ona challenging year and focuson the future. There are certainlynew realities that may requirereorganization, a reimaginedworkforce and a fresh lookat risk in a still uncertainmarket, but there is alsoextraordinary potential.MIDDLE MARKET CFO OPTIMISMWhile a majority of middle market companies expect 2021 will bring financial growth and broad economic recovery,their expectations come following a year of steep declines in revenue for many. For some companies, growth may meana return to pre-pandemic financial performance rather than reaching new records, but most believe the deepest hardship is over.CFOs IDENTIFY ASThrivingNOWONE YEAR FROM NOWNOWONE YEAR FROM NOW60%Struggling40%ONE YEAR FROM NOWNOWSurviving62%36%23%24%15%expect aneconomic recoveryin 202156%forecast a revenueincrease, downfrom 81% last year63%forecast aprofitability increase

4 / 2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEYFINANCIAL FORECASTS FOR THE NEXT 12 ERALLENERGYHEALTHCARELIFE SCIENCESRevenue IncreaseMANUFACTURINGRETAILTECHNOLOGYRevenue DecreaseIndustries like Technology, Life Sciences and Healthcare—that are chiefly responsible for powering business continuityand ensuring advancement in coronavirus care—are among the most optimistic for growth in 2021.Unprecedented was the buzzword in 2020 for good reason. Many middle market companiespersevered through levels of transformation and disruption in one year akin to what somecompanies experience in a full lifecycle. But rather than hunker down and endure, middle marketleaders endeavor to move forward to refresh strategy and enhance agility. While we’re not out ofthe woods, the middle market is poised to pivot to new levels of potential.WAYNE BERSONCEO

2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEY / 5What’s Next for GrowthOPPORTUNITYFrom urgent needs for PPE, plexiglass, sanitizer and signage, to overnight surges in theneed for virtual workplace collaboration and communication solutions, 2020 broughtunexpected demands to every corner of the marketplace.Looking ahead, companies across the middle market are anticipating more opportunitiesto evolve and serve changing customer needs. Life sciences companies are pivotingproduction and resources to develop COVID-19 therapeutics, technology companiesare investing to enable better remote work collaboration, and apparel retailers aremeeting increased demand for facemasks and athleisure.55%will increaseR&D spending in thenext yearNearly half of CFOs say one silver lining of the pandemic was faster decision makingin their organization, which they are using to press go on growth opportunities thatwill further the middle market’s path to recovery.OPPORTUNITIES FOR GROWTHPLANNING TOPURSUE IN 2021HOW ODUCT ORSERVICE ened new opportunity39%36%Created newinvestmentor expansionopportunities31%

6 / 2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEYAgility in the middle market wasthe result of intentional investmentin digital transformation over thepast several years which proved tobe a key enabler of resilience andbusiness continuity. With the returnon investment in digital clearer thanever before, the middle market plansto continue to focus on building theright technology infrastructure to bothmeet customer needs for reliability andconsistency and power their businessesforward. As companies continueto focus on resilience, data-drivendecision making and analysis will becritical to their ability to plan withprecision, mitigate emerging risk andenhance profitability.OPTIMIZATIONStrategic reflection also meant a focuson essentialism and reassessing valuein a new business environment. Somecompanies experienced depressedrevenues for many months anddeclined demand for products andservices that may not return to priorlevels. Now, they must decide whichareas of the business to prioritize andwhere they can optimize costs as partof their path forward.As of September 2020, nearlythree in four middle marketcompanies received governmentassistance as a result of the crisis.While the government has providedneeded relief, many companies willneed to take more measures to developa sustainable operating model.DIGITAL ROIMiddle market companies will prioritize technology in 2021 as they ensuretheir ability to meet changing demands, bolster security and safely enablework-from-anywhere eligible employees.59%will increaseIT spendingin 202127%say investing in technologyand infrastructure is theirtop business priorityFor more on middle market companies’ digital transformation strategies,view the latest BDO Digital Transformation Survey here.SECURED GOVERNMENT %HEALTHCARELIFE SCIENCES*As of September 202084%65%59%

2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEY / 7OPERATIONS OPTIMIZATIONSTRATEGYReorganizationMIDDLEMARKET PLAN37% will pursuea restructuringor reorganizationstrategy this yearReal EstateReevaluation32% willreevaluatetheir realestate footprintCarve-out21% will pursuea carve-out ordivestitureCost Cutting27% willdecreasespending onoperationsthis year13% say cuttingcosts is their topbusiness l40%Retail26%Retail25%Life SRestructuring or reorganization is a critical strategy forcompanies who cannot recover under current conditions. Keywarning signs of distress include insufficient cashflow to meetpayables, declining profitability, fully tapped credit facilities andthe loss of key customers without viable alternative revenuestreams. When considering the path forward, companies shouldfocus on core capabilities and areas of the business that meetthe needs of a post-COVID era. They should also make use ofnew or continued government stimulus opportunities and anyalternative funding strategies on their path to sustainability.One major real estate consideration for 2021 is whether, whenand how it will be safe for employees to return to the office atfull or modified capacity.To address this, companies need toalign real estate strategy to enterprise goals. This will requireunderstanding employee work preferences, styles and needsto maximize productivity and support projected growth andinvestments, as well as customer shifts. The priority will becreating an agile and flexible real estate portfolio structurethat allows a company to more easily respond to marketchanges and unforeseen events. Completing scenario planningthat anticipates potential future disruptions will be critical forcompanies to build resiliency into their portfolio planning.Carve-outs are a key strategy as companies take a sharper focusto streamlining their operations and focusing on core capabilities.But with more opportunities in the market, buyer scrutiny is high.Companies must first define what is in and what is out, and thencreate a standalone financial snapshot of the carve-out businessto articulate both the value and risk profile to potential buyers.Ensuring strong governance and thorough planning throughoutthe separation process will also be essential.The appropriate cost cutting strategy will be different for everyorganization but should focus on applying the appropriatetechnique to the business situation, including:XReviewing investment theses to see if they still hold trueXConsidering an 80/20 analysis.XEvaluating zero-based budgetingXFine-tuning rather than mandating flat rate cutsIn all cases, organizations should focus on high value areasof the business and seek cost savings by negotiating newdiscounts, optimizing inventory and supply chains, andoutsourcing or automating certain work processes.

8 / 2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEYOUTLOOK FOR DEALSThe SPAC TrackDeal flow saw highs and lows in 2020. After a strong start in Q1, then shifting to apause in Q2 as many businesses and investors braced for the initial impact of theCOVID-19 pandemic, Q3 saw the floodgates open as buyers and sellers returnedto the table to close deals prior to the end of year, in large part due to concernsstemming from the election and potential unfavorable changes to capital gains taxpolicy. Uncertainty in the economic outlook for 2021 also drove seller motivationto close deals in 2020. Despite this uncertainty, many middle market CFOs plan toproceed with deals to aid in growing their business and scaling.ACCORDING TO MIDDLE MARKET CFOs29%will seekPE investment24%plan a mergeror acquisition20%of private companieswill pursue an IPOChoosing the best path for growth will depend on the matchup of priorities betweenbuyer and seller, or company and investor. There is particular interest in sectorsthat have new potential or a stake in COVID-19 recovery, including technology, lifesciences, and healthcare. But across the board, the success of deals will be dependenton strong governance, including a thorough and accurate view of a company’s riskprofile and future opportunity.Balancing opportunity with optimization is the middle marketmantra. Changes to the marketplace mean new and untappedpotential to seek advantage, but companies must ensure theiroperational and digital strategy reflects new realities beforeembarking on any strategic move or partnership.JAY DUKENational Managing Partner of AdvisoryWe’re in the midst of a SPACsurge. A special-purposeacquisition company (SPAC)is an entity formed solely togo public and generate cash tomake acquisitions. Accordingto Dealogic, SPACs raised 41B through 120 IPOs as ofSeptember 2020, dwarfingprevious years’ results by4x. Behind the popularity,particularly in the currentclimate, is that it is a simplerand lower risk process forcompanies considering an IPO.For every great IPO successstory, there is an equallysignificant failure. In a volatileenvironment, the SPAC pathto late-stage funding througha 1:1 diligence and negotiationprocess is likely more attractivethan a roadshow withconsiderable pre-IPO scrutiny.While the trend has reachedinvestors from SoftBank toShaquille O’Neal, companiesshould keep in mind thateven if the process of goingpublic is more streamlined,there will still be stringentreporting requirements andinvestor scrutiny on the otherside. Whether preparing fora traditional or SPAC IPO,reporting and governancereadiness is essential to success.

2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEY / 9What’s Next for WorkFrom protecting workforce health, to managing a remotework environment, to providing resources for professionalscontending with new stressors like managing remotelearning during their workday, middle market employers andemployees have faced significant hurdles to both physical andmental health, and productivity. Employees are experiencingwidespread burnout, and businesses will need to proactivelycombat it to ensure they maintain performance levels.In addition to pandemic impacts, calls for social andracial justice have rightfully reached every middle marketboardroom. When asked about workforce strategies for thecoming year, prioritizing diversity and inclusion was themost commonly cited plan. Companies across every industryare ramping up efforts to build a more diverse workforce,including enhancing their recruiting, training and leadershipdevelopment programs. Transparency around diversityreporting is also a growing priority for stakeholders andshareholders, but executives know this is about much morethan reputation. Diverse perspectives are essential to growth.Research consistently shows inclusive teams and leadershipfoster more innovation and creativity, build better productsand services for end users, and provide more effectiveoversight and guidance.Roughly one third of middle market CFOs say that a silverlining of the pandemic was improved workforce cultureand unity—even in a remote environment. Now, companiesmust stay focused on building and enhancing a workplaceculture rooted in empathy that both meets the momentand positions them for new potential.42%are prioritizingdiversity andinclusion as aworkforce strategy

10 / 2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEYWORKFORCE PRIORITIESRETURN TO WORKSPACEEFFICIENCY24%are focused on returningall professionals to workas soon as possible36%are redesigningoffice or floor spacefor social distancing38%will seek to automatemanual labor22%will increase remotework options forall professionals28%will eliminate orconsolidate officefloor space21%will outsource toa low-cost center21%will increase remotework options forsome professionals11%say outsourcing rolesor functions is a topbusiness priorityOn-site work remains essentialin industries like healthcare,manufacturing, retail, energy and more.As a result, companies must maintaintheir focus on ensuring safety in thework environment and establishingevolving protocols to protect workersthroughout 2021.For jobs that can be performedremotely, middle market leaders canexpect flexible work arrangementsto go from perk to prerequisite.Many companies will find themselvesmanaging a more geographicallydispersed workforce which may createsome challenges in collaboration butalso open up new areas for talentrecruitment.According to Cushman & Wakefield,roughly 215 million square feet ofoffice space will be vacant due to thechanges in work and economy broughton by the pandemic.Whether by necessity or opportunity,many middle market companies will beseeking to optimize their office space andreal estate footprint in the coming year.As companies consider developing ormodifying their real estate strategy, theyshould justify their space needs not onthe past but on projected future demand.Demand will depend on overall changesto the organization, as well as how theiremployees prefer to work. For someworkplaces, considering a balance of hub,flexible space and remote work strategiesmay help optimize their portfolio andcreate competitive advantage.Middle market companies haverightfully invested significant time andresources into keeping their workforcehealthy and enabling continuity.In 2021 and beyond, companies willbe increasingly focused on workforceoptimization, flexibility and efficiency—including ensuring the right work isdone by the right people (or righttechnology) in the right location.From automating back office financeprocesses to leveraging robotic processautomation (RPA) for customer service,building more agility into workflowswill be critical.For more on how companies can reimagine work, view our interactive insight: The Resilience Agenda: Supporting Your Workforce.

2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEY / 11It’s people who are powering resilience and recovery. People who have weathered significant hardship andnew challenges—both personally and professionally—and yet still maintained their effort and energy in theworkplace. Workforce strategy should lead with empathy and focus on enabling employees to reach theirnext level of potential. That starts with building and reinforcing an equitable culture with advancementopportunities for all, and extends to optimizing work through technology and outsourcing.KELLY JOHNSONBDO Board Chair and Business Services & Outsourcing Practice LeaderShifts in overall workforce and productivity strategies coupledwith continued economic uncertainty leave CFOs split on theirtop workforce challenge for the year ahead. While maintainingcompany culture and managing a dispersed workforce duringa time of so much disruption are the most cited issues, CFOsalso note concern over increasing labor costs and the ability toattract and retain key talent.Maintaining top talent is a perennial issue given competitionfor key leaders and the costs associated with attractivecompensation and benefits packages. Now companies are upagainst a new challenge: According to the annual Women inthe Workplace study from, more than one in fourwomen are considering downshifting their careers or exitingthe workforce— a higher rate than men for the first time in thestudy’s history—due to COVID-19. As the pandemic threatensto undo years of progress toward more gender parity,companies should ensure continued focus on supportingwomen and diverse professionals to help avoid the burnoutthat is often the root cause of talent exiting.42%will increase spendingin HR/talent this yearCFOs DIVIDED ON TOP WORKFORCE CHALLENGESMAINTAINING COMPANY CULTUREMANAGING A WORKFOCE THAT IS AT LEAST PARTIALLY REMOTEINCREASING LABOR COSTS13%ATTRACTING NEW TALENT13%RETAINING KEY TALENT 12%SHORTAGE OF SKILLED WORKERS11%MANAGING FURLOUGHS OR LAYOFFS10%MANAGING LABOR DISPUTES10%16%15%

12 / 2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEYWhat’s Next for RiskIt’s a new year, and middle market CFOs have a newperspective on risk.Just as the crisis required a shift in focus to resilience, it alsoput previous areas of concern in new context. Prior to thepandemic, even though a majority of CFOs forecasted arecession within one to two years, data privacy was the mostprevalent concern. With a more challenging economic pictureat their front door, middle market companies now note moreconcern over a prolonged downturn.TOP BUSINESS THREATSThen1. Data PrivacyBreach2. CompetitivePressures3. PotentialEconomicDownturnNow1. ProlongedEconomicDownturn2. CompetitivePressures3. (TIE)Supply ChainDisruptionFalling Behindon Technology& InnovationStill, CFOs should not lose sight of other areas of risk, likeprivacy, which is likely to remain a major stakeholder andregulator priority as the economy stabilizes. Similarly, whilereputational risk did not rise to the top areas of concern thisyear, how companies respond to both the pandemic and socialjustice crises, and where they did—or didn’t—take action willbe a major contributor to their brand reputation going forward.Even as the economy and supply chain take important focus,the middle market should not overlook reputational risks thatcould have a longer-term impact.

2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEY / 13The supply chain has historically been viewed as a cost center, but now it’s proven essential to the healthand continuity of business across the entire world. This is an opportunity for middle market companies to gobeyond the goal of meeting demand to creating more value and optimizing each link of the chain. Having amore holistic view can help reduce risk, increase speed and transparency, and unlock competitive advantages.ESKANDER YAVARPrincipal and Global Value Chain Practice LeaderThe supply chain is now a clear priority across the middlemarket following a year marked by shortages, delays andunused inventory. In fact, our BDO Board Pulse Survey foundthat 48% of public companies experienced high or moderatesupply chain disruption in 2020. This level of disruption willhave lasting impacts.There’s also no guarantee that the disruption is over.Rather, the more likely scenario is that more disruption isahead. Middle market companies across every industry shouldbe focused on building more security and resilience into theirsupply chains.SUSTAINABLE SUPPLY CHAIN STRATEGIESDemand RecalibrationXWhat are the long-termimpacts on changesto customer behaviorand need?XWhat factors arereshaping demand?XDo we need to buildin redundancy?XHow can we build inmore agility to respondto change?DiversificationVisibilitySupplier RelationsXIs our business tooreliant on any key regionsor suppliers?XDo we need to establishnew or backupsupplier relationships?XCan we increasetransparency acrossour supply chain?XCan we move activitiescloser to ourend customer?XXXWhat are the tax andtariff implications ofour sourcing strategy?Can we adjust ourcontracts to build inmore guarantees ormore flexibility?XHow healthy are ourcritical suppliers/vendors?Can technologysolutions like RFID orcloud-based GPS helpus be more agile tochange?Companies are also making supply chain decisions basedon changes in exposure to tariffs. In fact, trade and tariffstopped the list of policy concerns for CFOs (22%)—exceedinghealthcare (20%) and tax reform (13%).With a new administration installed in 2021, CFOs should beconducting scenario planning for altered trade agreements andseek to minimize the impacts of any major changes. Buildingin more flexibility and agility to the supply chain will remain apriority, regardless of potential policy change.

14 / 2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEYUncertainty around potential changes to tariffs is just one of the critical tax challenges facing the middle market. With every growth,optimization or supply chain decision comes a resulting impact to tax exposure on some level, be it federal, state and local orinternational. Properly assessing the impact of any new actions on a company’s total tax liability is a crucial element to determiningif the strategy will help ultimately reduce tax costs, or conversely add new ones that could diminish or even eliminate its value.CFOs’ TOP TAX CHALLENGESUNDERSTANDING THEIR TOTAL TAX LIABILITY19%TRANSFORMING THE TAX FUNCTION FOR GREATER EFFICIENCY AND BETTER INSIGHTS19%NAVIGATING SHIFTING TRADE AND TARIFF POLICIESSCENARIO PLANNING FOR POTENTIAL TAX REFORMUNCERTAINTY AROUND DIGITAL TAXATIONMANAGING ALL STATE AND LOCAL OBLIGATIONS17%16%15%14%The events of the past year have forced many middle market businesses to reassess their overall businessplans and to evolve their tax strategies to go hand in hand with those efforts. While exposure to new taxliabilities can come at a significant cost, effective tax planning can optimize them, leaving businesses withthe cash they need to pursue their plans.MATTHEW BECKERNational Managing Partner of Tax

2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEY / 15REPORTING ON RISKCompanies are also focused on how to best communicate changes to risk posture,business continuity plans and ongoing impacts of the pandemic and economicdownturn. When asked about financial reporting challenges, 17% of CFOs saidmanaging disclosures and risk factors would be their top issue. A report from theCorporate Governance Research Initiative at the Stanford Graduate School of Businessand the Rock Center for Corporate Governance at Stanford University found that99.4% of the 3,644 public companies they analyzed made some type of disclosurerelated to COVID-19 between January and May 2020.Following this surge of new risks, the SEC issued guidance to help public companiesprovide COVID-19 impact disclosures on matters that may be material to investors,including access to credit, ability to service debt, reliance upon key customers orsuppliers and ability to continue as a going concern. Liquidity continues to a be acritical area of focus and concern, even following stimulus efforts. Complying withthe reporting requirements from government assistance programs will also be a keychallenge, with a majority of middle market companies securing assistance and thusneeding to ensure they have the proper documentation, recording and reportingto stand up to potential audit and avoid penalties or repayment, where possible.54%will increase spending infinance and accountingdepartments this year

16 / 2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEYTOP FINANCIAL REPORTING paring for newstandard implementation13%Bolstering internalcontrols overfinancial reporting16%Reportingrequirementsfrom governmentassistance programs17%Managing disclosuresand risk factors17%Leveraging technology tostreamline reportingOn the Horizon: Lease AccountingAs middle market companies reset and rethink strategy for 2021, leasing is likely to be a key part of their real estate and costoptimization strategy. Companies should be mindful of the landmark new lease accounting rules, which are in effect for publiccompanies and will begin in 2021 for private companies. The new rules bring leases to the balance sheet as a liability for thefirst time and require careful planning, documentation and resources to implement.

2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEY / 17The middle markethas been a model offlexibility, and whenit comes to risk andreporting requirements,consistent diligence isthe prized approach.Stakeholders will haveincreased scrutiny as thelong-term impacts ofcrisis continue to playout, and companieswill need to rely on atransparent and accuratefinancial picture to helpthem realize their newpotential and plan withmore precision.BILL EISIGNational ManagingPartner of AssuranceNothing is normal about the year ahead. Customers will have unforeseen demands, and newinnovations will rise to meet them. Policy and economic changes will continue. More issues will arisethat put the middle market to the test.But that is the whole point of resilience: The goal is to build a company that can withstand unknownrisk, plan for the future while being adaptable to inevitable change, and empower a workforce that canpivot to new potential.The middle market is ready to move forward and not just experience what’s next, but define it.

18 / 2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEYRespondent ProfileThe 2021 BDO Middle Market CFO Outlook Survey is a survey of 600 middle market CFOs in the U.S. The survey was conducted byRabin Research Company, an independent marketing research firm, in September 2020.Average tenure in current CFO role: 5.2 yearsANNUAL REVENUE 2B- 3BINDUSTRIES5%19% 1B- 2B 751M- 999M23%32% 501M- 750M21% 251M- 500M 100M- 250MXEnergy: 100 respondentsXHealthcare: 100 respondentsXLife Sciences: 100 respondentsXManufacturing: 100 respondentsXRetail: 100 respondentsXTechnology: 100 respondentsLess than 1%COMPANY TYPEREGION OF OPERATIONS50%Public67%33%U.S. onlyU.S. &othercountries50%PrivateView the survey results by industry:EnergyHealthcareLife SciencesManufacturingRetailTechnology

2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEY / 19ABOUT BDO USABDO is the brand name for BDO USA,LLP, a U.S. professional services firmproviding assurance, tax, and advisoryservices to a wide range of publiclytraded and privately held companies.For more than 100 years, BDO hasprovided quality service through theactive involvement of experiencedand committed professionals. Thefirm serves clients through more than65 offices and over 740 independentalliance firm locations nationwide. Asan independent Member Firm of BDOInternational Limited, BDO servesmulti-national clients through a globalnetwork of more than 88,000 peopleworking out of more than 1,600 officesacross 167 countries and territories.BDO USA, LLP, a Delaware limitedliability partnership, is the U.S. memberof BDO International Limited, a UKcompany limited by guarantee, andforms part of the international BDOnetwork of independent memberfirms. BDO is the brand name for theBDO network and for each of the BDOMember Firms. For more informationplease visit: discussed is meant to providegeneral information and should not beacted on without professional advicetailored to your needs.

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4 / 2021 BDO MIDDLE MARKET CFO OUTLOOK SURVEY 56% 24% 64% 17% 70% 11% 69% 16% 45% 37% 37% 44% 54% 18% OVERALL ENERGY HEALTHCARE LIFE SCIENCES MANUFACTURING RETAIL TECHNOLOGY Revenue Increase Revenue Decrease Unprecedented was the buzzw