The past year has challenged long-held assumptions and caused many companies to reexamine every aspect of their business. LBMC’s fourth annual Business Outlook Survey Report looks back on 2020 and the impact that extraordinary year had on a wide range of industries, as well as peers into 2021 to see what leaders anticipate in the months ahead.

This report was based on results from the national Business Outlook Survey, where more than 500 business leaders, mostly in C-level positions, reviewed business activity over the past year and provided insight into the business landscape over the next 12 months. More than half of the participants represent companies with $15 million plus in revenue and at least 50 employees. For the first time, this year’s report also surveyed high growth companies – businesses with a growth rate of at least 20%. Leaders from across the U.S. participated in the survey, as the map shows.

Business Outlook Survey Participant Locations

Business Outlook Survey Participant Locations

The Rapidly Changing Business Environment

Top Business Challenges

COVID-19 is the top external challenge companies faced in 2020 (65.7%), followed by domestic economic conditions and the cost of employee benefits. Last year’s top challenge—developing new products/services/markets—dropped from 35.1% to 19.8%.

2021 Top Business Challenges

The Impacts of COVID-19

Almost three out of four businesses were negatively affected by COVID-19, and businesses across all industries felt an adverse impact from the pandemic. Some companies struggled more than others, and the level of impact was felt differently in each industry. When asked which part of their business was most impacted by COVID-19, respondents most often cited loss of sales and revenue, employee demand, and a decrease in demand for services. In addition, to cope with the pandemic, businesses had to reconsider many of their operating assumptions—including staffing/recruiting, remote work and new office arrangements, and new technology and automation investments.

While all industries were negatively affected by COVID-19, some were more affected than others. The non-profit/education and healthcare industries were most negatively impacted by the pandemic, while technology and professional services were least affected. That said, roughly two thirds of respondents in these industries experienced challenges.

Business Impact of COVID-19

Sentiments on 2020 Election

While 4 out of 10 businesses believe the 2020 election will have a negative impact on their business, the majority have a positive or neutral outlook. In the group holding a negative outlook, respondents worried most about increased taxes and regulations, anti-business government, and increasing lockdowns. Roughly 1 in 4 believed the outcome of the election would result in a positive impact for their business. These respondents looked forward to greater stability/predictability and more generous healthcare reimbursements.

Impact of the Election on Business Expectations

Attitudes toward the election varied by industry. Technology companies have a more positive outlook than most. Common reasons for positive expectations include better leadership, an improved COVID-19 response, and greater market stability.

Among all industries in the study, C&RE was the most negative toward the election, with increased taxes and more regulations as their top concerns. More healthcare respondents believe the election will have a negative impact on their business than believe it will have a positive effect, but almost a third of respondents believe the election will have no effect at all on their business.

M&D companies are overall not optimistic about the election, primarily because of potential increases in taxes and regulations. However, 1 in 5 M&D companies think the election will have a positive impact, specifically because of better stability and predictability in the market, and improved foreign relations and global business. This last factor could explain why optimism about the world economy is higher in the M&D industry than last year.

Future Outlooks and 2021 Goals

Perceptions of the U.S. and World economies are the lowest we have recorded since we started this study, and respondents’ outlook on their regional economies saw the steepest decline in optimism since last year. Of respondents’ outlook on the global, national, and regional economies, the world economy fared the worst.

Growth and improving financial performance are top goals heading into 2021. Like last year, growing sales/products (69.8%) and services and improving financial performance (55.0%) were respondents’ top two business goals. A greater percentage of businesses than last year are looking to improve their information management capabilities. While not in the top four, finding and retaining top talent remains a key goal for 2021.

Top Business Goals in 2021

Business Performance/Strategies

2020 Revenue

While nearly half of all businesses in 2020 experienced either no growth or a decline in revenue, 1 in 5 experienced high growth rates of greater than 20%.

Growth Categories Based o 2020 Revenue

Sales and Profitability Strategies

The top strategies for increasing profitability in 2021 were improving productivity/efficiency and decreasing operating expenses. While companies are more interested in selling existing products to existing markets than expanding into new markets, a healthy percentage still plan to expand into new markets and develop new products and services. Growth is still on leaders’ minds.

2021 Sales Strategies

Capital Spend

There is a strong correlation between capital spend and revenue growth, and high growth companies are showing the way. When it comes to capital spend, the average business plans to increase its budget by nearly 9%. High growth companies are much more inclined than their no growth brethren to increase their capital spend (18.1% vs. 3.7%). Acquiring new locations/facilities, marketing, and IT are the most popular targets for this investment.

2021 Anticipated Capital Spending - High Growth vs. No Growth

Mergers and Acquisitions

Less than 15% of our responding businesses are considering mergers or acquisitions (M&A) this year. Please note that these respondents were not private equity firms. At LBMC, we have seen a lot of activity in the M&A space – both buy-side and sell-side – among companies who are interested in M&A as a business strategy. The fourth quarter of 2020 had a tremendous amount of activity in M&A. Technology firms have a greater appetite for M&A than any other industry. Over 44% of technology firms are considering merging with, acquiring, or being acquired by another firm in 2021. High growth companies are only slightly more likely than their no growth peers to consider a merger or acquisition.

Key Business Topics for 2021

Acquiring/Retaining Talent

As a result of the pandemic, employment took a hit in 2020. Nearly 1 in 4 businesses decreased the number of people on their payroll—almost three times higher than the year before. But some organizations, especially the high growth group (68.4%), expanded their employee ranks. More than half of organizations plan to focus on acquiring or retaining talent in 2021. This is a higher priority than investing in technology or cybersecurity. Nearly three-fourths of high growth businesses plan to increase hiring in 2021, while only a third of the no growth group plan to expand their employee base. Attracting and retaining talent looks much different in a post COVID world.

Hiring Expectations for 2021

Technology Usage

Most organizations manage their business technology by improving the performance of existing systems. When it comes to adding or replacing business technology, the high growth and no growth groups have drastically different strategies. High growth organizations are much more likely to add a new system, while their no growth peers often opt to replace systems. This could be a sign that high performing businesses are more prone to try the latest technologies, while their no growth peers work with older systems until they become obsolescent.

Current Strategy for Managing Business Technology

Businesses are planning to invest in cloud-based and business intelligence technologies. In terms of technology investment, data integration is the most common need (73.3%) among M&D companies. Contrast this with the overall sample, where only 32.1% plan to invest in data integration. Nearly all other industries have cloud technologies at the top of their list. Just over one-third of construction and real estate companies are looking to replace existing systems which differs from most other industries. It is more important than ever for this industry to be able to track and measure projects to make sure they are on time and within budget. Having modern cloud accounting solutions, document management automation, and a secure IT environment enables businesses to access real time data and deliver clear and measurable results.

Technologies That Businesses Plan to Invest in 2021

Cyber and Data Security

One in four businesses prioritize cybersecurity. Of that group, most are likely to perform a cybersecurity risk assessment. More than half of respondents who prioritize cybersecurity plan to perform a cybersecurity risk assessment or conduct IT assurance and compliance activities in the next year. Over a third of respondents plan to invest in information/data security over the next 12 months.

If you are a current client and would like to continue the discussion specifically to your firm, you can reach out to your LBMC partner. You are welcome to send an email to me to talk further about your business strategies for 2021.

I hope that you have some takeaways you can use in your strategies for 2021. If you are interested in some of our industry specific results, review these pieces for manufacturing/distribution, technology, healthcare and construction/real estate.