If there is something we have learned collectively over the past two years, it is that uncertainty is somewhat inevitable. Business owners have faced unprecedented challenges, including health and wellness concerns, government-compliance issues, labor challenges, and a wildly unpredictable economy. From a good-news perspective, there are signs that aspects of our lives are progressing to some semblance of pre-COVID normalcy. Unfortunately, news about global economic conditions remains ominous, and the future is shrouded in uncertainty.
This begs the question: what actions should be taken by business owners with conditions as unsettled as they currently stand? Perhaps starting with what we recognize are the major uncertain issues is in order.
Inflation is a major concern, according to many recent national polls seeking to better understand the national mindset. The most recent Consumer Price Index figure of a 9.1 percent increase is the highest since 1981. The effects of inflation are not only evident in fuel and food prices, but also in rent, commodities, labor, and logistics. It is the most pervasive and potentially destructive economic indicator that consumers and business owners are being forced to address.
Labor issues remain a major source of unease, especially for hospitality and service-sector businesses. Finding workers has been a significant challenge. The good news on that score is that consumer spending, up to this point, has been strong; hence the need for labor to meet consumer demand. The most recent U.S. Department of Labor reporting indicates that unemployment remains low, and the economy continues to add jobs. There are some reports beginning to emerge, however, that the trend may be changing. The number of people exiting the workforce appears to be on the rise, and with potential economic tightening, the number of available jobs may contract if consumer spending also tightens.
Supply-chain issues remain a challenge facing many small-business owners. We are continually hearing from entrepreneurs of the complications they experience as they continue to try to meet consumer needs and profitability goals when faced with the inability to acquire needed inputs for their businesses.
These are among the many complex and nuanced difficulties gnawing at the minds of the small businesses we work with every day. In some cases, it is difficult to forecast with any certainty what the next 12-24 months may look like economically. So what things should a business owner do to help mitigate the challenging times we expect to face in the near term?
1. Perform a cash-flow analysis — This is one thing most business owners never do and should. A cash-flow analysis can help evaluate the future and provide the business owner a tool to help make informed decisions. A cash-flow analysis looks at current and future spending and revenue. Done properly, it can help a business owner understand how minor changes in prices or costs can affect the flow of cash to the bottom line. Business owners can also use a cash-flow projection to perform a scenario or “what if” analysis to see what happens if they adjust labor, prices, or jettison unnecessary costs.
2. Challenge vendors — Purveyors of products or services to your business are all feeling the pinch, the same as everyone else. However, your obligation to the business is to protect your margins. Leveraging the competitive marketplace to find better terms for the products and services your business requires is simply good business.
3. Be data driven — Using data to help make decisions rather than the emotion of the moment is always a safer long-term approach to business decision-making. The temptation exists to consume news reports that portray the near future as Armageddon-like. It takes time to be an informed decision-maker. Develop a regular routine of consuming information relevant to your business and industry from multiple sources. In addition to gathering information that may affect your business, implement a frequent and consistent internal data-gathering system to monitor activity within your business. Business owners who understand how minute changes to key performance indicators (KPIs) affect business outcomes are well-positioned to make informed decisions.
4. Be proactive — The coming months are guaranteed to be riddled with challenges. It’s recommended to get the data-monitoring systems in place, from cash flow to frequent KPI reports to industry and economic-news reports. A proactive approach to preparation will give business owners the best opportunity for a calm, measured approach to effective decision-making in the months to come.
The last recommendation I would like to make is to communicate with your circle of advisors. Consult with your accountants, attorneys, trusted industry partners, or mentors, and discuss your environment and your options. Our advisors are also here to help. We can gather research, assist with developing cash-flow projections, and even help complete a full financial health analysis of your business. Our team can facilitate the process through which entrepreneurs can make informed decisions and take informed action, because information is the greatest tool to navigating uncertainty.
Learn more at www.onondagaSBDC.org
Robert Griffin is the regional director of the Small Business Development Center (SBDC) at Onondaga Community College.