For many companies, it appears that leasing is here to stay. Especially for mid-sized companies that are growing and striving to succeed, finance executives view leasing as an important financing strategy.
However, the Federal Accounting Standards Board (FASB) is working on a change in the lease accounting standard that is giving finance executives reason to pause and reexamine their financing options. The proposed change would move all long-term operating leases onto the balance sheet as non-debt liabilities. At this point, finance executives have questions about how the change would impact their reporting of liabilities, and potentially alter key financial metrics such as ROA, debt-to-equity, and cash flow. For this reason, they also have questions about the proposed accounting change's ripple effects on operating decisions and on a company's ability to meet the terms of previously negotiated bank covenants.
To help gauge the potential scope of these concerns, CFO Research, in collaboration with CIT Group, surveyed finance and corporate leaders from small and mid-sized U.S. companies. The message is loud and clear: Leases, and in particular, operating leases are core elements in many of their growth strategies, and so it will be important to understand the consequences for their business of changing the accounting standard.
Middle market companies account for one-third of private sector GDP and employ 25% of the total labor force.
While less visible than both small and large caps and vastly undersupported, middle-market companies are a significant driver of the U.S. economy.
But what makes a company "middle market"? That depends on who you ask. Some define middle market by the number of employees or locations, others by revenue.
While there is no universally accepted definition, it is clear that these are organizations that are larger than Main Street, Mom-and-Pop shops, but smaller than your global multi-national corporations. They typically generate revenues between $5 million and $1 billion dollars annually, with 100 to 2,000 employees. If this describes your business, then you are a middle market company.
Whatever the delineation, it is clear that this broad definitional spectrum has contributed to an identity crisis of sorts for this large economic segment.
A recent study conducted by Harris Poll on behalf of CIT revealed that small business executives are highly likely to self-identify as a "small business," driven, in their own words, by the number of employees and/or how the business is owned.
However, middle market executives don't always see themselves as part of the middle market. In fact, respondents were virtually split, with 43% of middle market businesses identifying as middle market and 41% identifying as large businesses. The remaining 16% consider themselves small businesses.
However you choose to define it, the middle market's impact on economic and employment prospects cannot be discounted. This segment is an interesting class that will continue to play a pivotal role in the American economy's rapidly changing landscape.