Finance & Accounting Software is Having a ‘Mid-Market Moment’ - Here’s How to Make the Most of It
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If you work in finance or accounting for a “mid-market” company, you may know what it’s like to feel as if you’re nobody’s target customer - especially when it comes to financial close and consolidation software.
Vendors have always been eager to win over the lucrative enterprise market in any given industry. Selling to small businesses, meanwhile, usually means a quick sales cycle and a self-serve, “one size fits all” product offering.
Mid-market firms have typically been left to the sidelines. They’re not big enough to rank as a high priority for some, while their needs are too complex and personalized for others.
The Mid Market Defined
“Mid market” may also seem pretty broad at first glance. I’d define it as companies with annual revenues from $50 million to $3 billion. That leaves plenty of room for differences in terms of business objectives, complexities and key challenges.
Like large enterprises and small businesses, though, mid-market companies have emerged from 2020 facing renewed optimism and new opportunities for finance-led business growth - mergers, acquisitions, geographic expansion and more.
How you take advantage of those opportunities in 2021 will depend in large part on your ability to accelerate digital transformation across your business. Whether some or all of your team will continue to work remotely or not, having tools that foster collaboration and boost productivity will be the only way to keep employees engaged.
This helps explain the surge in IT spending from market research firms like Gartner, which forecasted a 6.2 percent increase this year - up from a 3.2 percent drop in 2020 - and 8.8 per cent growth for enterprise software in particular.
Goldilocks in Reverse: A Little Too Big...A Little Too Small
What sometimes gets lost in those stats is the value that comes from applying technology to vital business processes in areas like finance and accounting. Here, the ability to close your books with confidence - fast - is a precursor to executing a larger business strategy.
This is where mid-market organizations have traditionally faced an additional hurdle to jump.
Large enterprises have long enjoyed an abundance of choice in terms of software applications and platforms, tailor-made to handle huge volumes of users. There are consulting firms who specialize in serving the Fortune 1000, for example, making sure new software and other technologies deliver on enterprise expectations.
The same has increasingly been true for small businesses. They enjoy “lite” versions of enterprise software, created specifically for companies with limited users and a narrow breadth of business needs.
Mid-market companies, on other hand, have tended to suffer from a sort of middle child syndrome. Their needs can be diverse and complex. They’ve been excluded, ignored or neglected by traditional tech vendors. And that disconnect shows in their finance and accounting performance. Take the financial close time as an example:
- As Robert Kugel from Ventana Research puts it, “midsize organizations are slow closers,” with 59% taking more than a week to close their books. Of those, 54% rely extensively on Excel spreadsheets in the process.
- Our own research shows a similar, even more striking correlation. Almost 7 out of 10 rely on Excel for financial consolidation, and 55% take three weeks or more to close.
Fortunately, a change is underway. More companies recognize the value and market opportunity to serve the mid market. With the emergence of modern cloud solutions for finance and accounting, we’re beginning to see the emergence of tools that hit their sweet spot in terms of both usability and scalability - in size and business complexity.
Stay with me and I’ll not only prove why now is the best time to be in the middle; I’ll explain how the right software can transform how you manage your company’s financials today - and capitalize on new opportunities for growth tomorrow. In particular, I’m going to examine:
- Why there’s reason to be optimistic about mid-market growth
- How the right financial close software can help grow your business
- The risks of adopting ill-fitting finance software - and how to avoid them
- How to go big without buying big-business technology
- Why the software future is bright for the mid-market finance function
Why Be Optimistic about Mid-Market Growth?
Since the recession of 2008-2009, companies in the mid market have been on a consistent winning streak from a financial perspective. According to data from the National Center for the Middle Market, firms in this segment have averaged 7.0 percent topline growth from 2012 through 2019.
Although COVID-19 took just as much of a toll on the mid market as other business segments, the NCMM is now projecting revenue growth in 2021 of 4.1 per cent. The outlook is even brighter for pockets of the mid market like professional services, which actually grew revenues at nearly 3.0 per cent and employment at 1.7 per cent during 2020.
If that’s not enough, according to research from BDO, almost two-thirds of mid-market company CFOs (62%) expect to be thriving by the end of 2021. What’s more, 59% plan to increase IT spending, and 54% plan to invest specifically in new finance and accounting technology.
The emergence of 100% cloud-based solutions for finance and accounting is another reason for optimism on the technology supply side. Modern cloud software offers mid-market finance teams scalability, security and performance that they simply can’t achieve with legacy ERP or on-premise software - yet that’s precisely what 47% use for financial consolidations, according to survey research from BPM Partners.
Continued growth in the mid market may also stem to some degree from economic measures like Paycheck Protection Program (PPP) loans. Those measures have helped stimulate an increase in available capital. It’s now the mid-market sector’s move to ensure those financial resources are allocated to the best possible use.
The opportunity isn’t just limited to investing in new technology, additional hires or infrastructure. Finance leaders will help their organizations realize their potential by also looking for ways to replace fixed costs with variable ones, and to improve their ability to forecast cash flow and working capital needs.
This might mean streamlining processes to produce more accurate, trusted numbers and insights. This can pave the way to pursue new growth opportunities like acquisitions, which can bring on greater complexity thanks to different charts of accounts, multiple currencies, various ERP/accounting systems and local regulations.
The Business Case for the Right Financial Close Software
At this point, the ability to manage financial close, consolidation and reporting in a timely and accurate manner becomes an essential part of maintaining trust with executives, boards and shareholders. It also provides the CEO and other members of the leadership team with early warning signals around revenue loss, profit margin erosion or customer churn - to make course corrections quickly and wisely.
Getting a better read on financials will also help pin down the true cost of serving customers, and therefore to price products and services. The risk of wasted opportunity costs is reduced. Knowing whether it will be profitable to expand into new markets or geographies becomes clearer.
These are more than just finance issues; how you manage your financial consolidations has far-reaching implications on how your business runs today - and thrives tomorrow.
When financial processes become well-oiled and the right information is available, mid-market businesses should have considerable advantages over their counterparts. What’s more, odds are you have less bureaucracy than your enterprise counterparts, positioning you to be quicker to capitalize on growth opportunities.
This brings us back to having the best tools for the job, though — and where choosing something that wasn’t designed with mid-market customers in mind can have serious consequences.
Don’t Let Ill-Fitting Software Happen To You
Tell me if either the following scenarios sounds a little too familiar:
Though the time and effort currently required to produce your consolidated financials no longer makes sense, adopting new financial close software is uncharted territory. You may have concerns about the change management involved, and if the selected software solution doesn’t deliver as promised, it will be that much harder to afford something else.
The fear of technology risk, along with a desire to walk before you run, may lead you to opt for a solution that’s typically intended for small businesses. It feels like the right move because the price point is relatively low and you won’t need to trouble your already-overstretched IT department in deploying it and training.
Everything goes fine...at first. Then, as you try to accommodate the complexity of your business with the chosen solution, unmet needs emerge. Things like workflow automation, or rolling up financials from new investments and subsidiaries - each with its own ERP system, chart of accounts, local currency or even year-end.
Features that once seemed nice-to-have suddenly become must-haves if you want to elevate your finance function and grow your business overall. Think about advanced consolidation needs like:
- Intercompany eliminations and transaction matching
- Reporting on financials and operational KPIs
- Reconciling accounts between your general and sub ledgers
- Forecasting cash flow based on real-time actuals
- Managing minority investments, equity pickups and other complex ownership structures
As a mid-market company, your financial close software needs may not be very different from those of larger enterprises. You may realize you need that enterprise-grade functionality but, as I’ll discuss next, without the enterprise-sized frustration.
The Trade-Off in ‘Going Big’
Instead of opting for a small business solution, maybe you anticipated these needs and challenges ahead of time.
Realizing the importance of scalability and power, let’s say you decided on the same “mega vendor” software used by giants in your industry. The price tag is higher. The implementation is a lot longer. The learning curve is steep. But the hope is they’ll all be well worth it for the functionality you’re gaining.
Except...there’s a lot more involved than actually purchasing enterprise software and flicking an “on” switch.
You’ll have to take a close look at all the other software your company already runs, and make sure you can integrate with your new enterprise software. It might require your firm’s IT shop to write new code - or hire a third party to do it for you.
Unless your IT department has deployed this kind of tool before, you may have to factor in the cost of a consulting firm or system integrator to do much of the heavy lifting. Given this could affect significant areas of your company’s operation, though, you might also need to pull a few people to appoint as internal project managers to work with them.
This means developing workback schedules, and aiming to hit “milestones” instead of the quick wins you were counting on. And be careful, because some enterprise software was not only designed for large firms but those with specific vertical markets requirements. That could make customizing even more costly and labor-intensive.
Though it might feel like it took a while, this is why a growing number of software vendors are recognizing the demand for mid-market solutions. And some - like Fluence - are putting their full weight behind meeting that demand.
Aside: Fluence Funding as a Case Study
Earlier this year, Fluence closed a $10 million funding round with Banneker Partners, an enterprise software-focused investment firm based in San Francisco.
The funding is obviously great news for us, but it’s even better news for our current and future customers. It represents the kind of market confidence that’s allowed us to become the only financial consolidation vendor focused exclusively on the mid market. To invest more in a solution specifically designed for mid-market companies, with features including:
- No-coding administration that’s easy for finance to own and maintain
- Out-of-the-box delivery so customers can go live in weeks, not months (or more)
- A cloud calculation engine that scales with customers as they grow in size and complexity
As Craig Schiff, president and CEO of research and analyst firm BPM Partners put it:
“Mid-market companies have struggled with financial consolidation for years, having to choose from using a patchwork of spreadsheets, overly simplistic mid-market solutions or complex software intended for large enterprises.
Fluence is giving mid-market companies an option many didn't even know they had, filling a sizable void in a market segment with tremendous untapped potential.”
Enough about Fluence...let’s get back to the bigger picture of why it’s a great time to be a mid-market software customer.
The Bright Future of Mid-market Software
By my estimate, in North America alone the mid market represents more than 30,000 companies. With such an untapped market, it’s clear why more software vendors are looking beyond typical enterprise and small business offerings.
We’ve already seen many technologies that work well regardless of company size. Consider videoconferencing applications like Zoom or Microsoft Teams, or messaging apps like Slack.
As more of the mid-market tech stack includes tools for specific departments and functions, the important thing is to look beyond what’s typical and evaluate the companies trying to win more of your business.
The best mid-market software solutions will be backed by people with a proven track record in serving customers with unique business challenges. They’ll also have a strong, long-term vision of how they want their product and service portfolio to evolve.
At Fluence (one last plug!), we have a product that is based on literally centuries of combined leadership experience across more than a half-dozen companies dating back more than 30 years.
Truly exceptional mid-market vendors will also be ready to continue innovating and adapting as their customers’ needs change. Like I mentioned earlier, the mid market represents a broad swath of organizations. The finance and accounting applications set to serve them have to:
- Be quick to implement and easy to adopt - e.g. embracing, not replacing Excel
- Embrace the cloud for scalability, security and performance
- Take into account multiple entities, investments, regions and currencies.
The right mid-market vendor will not only meet your needs today, but serve as a reliable partner as your needs grow. The right vendor and their software will help your finance department shape your corporate strategy, informing decisions to capitalize on every growth opportunity ahead.
To see if Fluence is that vendor for you: