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Talent and health care among top concerns for middle-market companies

While the state of the economy is always top of mind, middle-market companies are constantly confronted with many concerns. But which are most pressing right now and where should your focus be? To find out, KeyBank surveyed over 400 middle-market business owners and executives in our recent Business Sentiment Survey.

Attracting talent is the top concern of middle-market companies, followed closely by health care costs and increased competition/pricing pressure. Not surprisingly, given the headlines, the risk of an economic downturn and trade agreements/tariffs were also high on the list.

Attracting, developing and retaining talent

Attracting talent consistently ranks at or near the top of concerns in these surveys, with talent retention not far behind. Middle-market companies are staffed by multiple generations of workers, each with its own set of expectations, priorities and habits.

More and more, companies are recognizing that they need to make changes in order to attract the right people. Successful companies recognize the differences among the generations and adjust accordingly. That doesn’t mean playing favorites; rather, it’s realizing that millennials and Gen Z are different than those who came before them and creating a work environment that appeals to them will result in improved recruiting and greater workforce stability. Employee development has always been, and will continue to be, a hallmark of successful companies, even if the programs and methods change.

Ultimately, the best way to recruit top talent is to know who you want to recruit before you start searching for candidates. That means defining the demands of the job and the fit factors for the job, including fit with key colleagues, superiors and/or reporting employees. Once that’s done, looking for employees is more a matter of checking the boxes, than a hopeless search.

Trade wars and tariffs

Trade agreements, tariffs and cybersecurity fraud also worry middle-market companies, specifically, the uncertainty around the tariffs is what is concerning to many. This can impact what decisions are made and how companies price products or negotiate with suppliers. The impact of new tariffs on middle-market companies has worsened as the trade war with China heats up. Among other things, the uncertainty and impact of the trade wars have caused companies to hold off on their expansion plans, raise prices and seek alternative suppliers.

There’s little doubt that it’s important to pay attention to the talk surrounding tariffs. But while you’re making your day-to-day decisions, don’t look into your crystal ball too deep so that what could happen has a greater impact on you and your business than what ultimately happens.

Fraud

Cybersecurity remains a top concern for middle-market companies. In fact, fraud cost U.S. companies, on average, $7.9 million in 2018. The constantly evolving landscape of cyberspace means big growth opportunities for hackers, criminals and terrorists. From internal correspondence to operational systems, payment systems to collection of customer data, cybercrime is a real threat for just about every organization. And criminals are getting more crafty as well.  A recent study, sponsored by tax firm RSM, showed ransomware has become the most common form of cyber incident, but traditional hacking, malware and business email compromises are still very popular with attackers.

To combat fraud, our KeyBank experts suggest an extensive defense with in-depth controls, including fraud and cyber tools that create layers of protection. Other tactics include multi-factor authentication in both customer-facing content and the work stream, as well as shifting from prevention to detection policies for heightened anomaly and heuristic detection.

Acquisition considerations

Compared to the last two reporting periods, middle-market companies indicated they are less likely to complete an acquisition in the next six months. This is partially attributable to increased competition, which is driving up company valuations and the cost of acquisitions, especially for lower-revenue companies. Uncertainty over trade and a possible global economic downturn also contribute.

In many cases, today’s middle-market deals are executed to either grow revenue or as a reaction to industry consolidation resulting from competitive pressures. When evaluating your options, make sure you’re looking at the acquisition, but also devote time, energy and resources to  the integration and how your company will capitalize on the synergies and grow revenue.

Economic outlook among middle-market executives

Despite their concerns, middle market companies remain mostly optimistic about their own companies and the U.S. economy. That optimism can be seen among the nearly three-quarters of respondents who said that they plan to expand in the next six months.

Adding employees was the expansion method most commonly cited, followed by significant equipment purchases, adding new facilities and locations and expanding or renovating current facilities.

No matter the position your company is in, now is a great time to think about the opportunities and challenges you face on a daily, weekly and monthly basis. While the economy will no doubt impact your business and your plans, talk with your banker to develop a strategy that will help position your company for success now and help you capitalize on future opportunities.

Scott Schlange is the Commercial Banking Sales Leader with KeyBank in Idaho. He may be reached at 208-364-8559 or scott_a_schlange@keybank.com.

This material is presented for informational purposes only and should not be construed as individual tax or financial advice. Please consult with legal, tax and/or financial advisors. KeyBank does not provide legal advice. ©2019 KeyCorp. KeyBank is Member FDIC. CFMA #191004-672119

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