Business Planning and Reducing Uncertainty in a Complicated Economy
No economic data point exists in isolation. Sometimes economic trends overlap and amplify each other; other trends may partially cancel each other out. When multiple trends hit at once, in new ways, the sense of uncertainty can be overwhelming.
That’s when owners should look for ways to reduce uncertainty, whether by securing financing under favorable terms, altering their approach to inventory, or revisiting their business plans. The key is to be deliberate, act early, and work with trusted advisors who can help you navigate a complicated environment.
Understand what changing Fed interest rates imply – and what they don’t
Businesses rightly keep an eye on the federal funds rates set by the government – these rates influence how much it costs to borrow money, and a rise of a couple percentage points could significantly impact monthly payments. But the actual interest rates banks charge on loans are based on market demand, so don’t fixate on the Fed. Talk to your banker, and if you have borrowing in your future, lock in your rate sooner than later. We are coming off a long run of historically low rates, and even with an increase, you may still secure good rates in the big picture.
Plan accordingly for continued supply chain issues
For many businesses, including retailers, construction, and manufacturing, supply chain issues have been the cause of much frustration over the past few years. In many cases, it’s not a single big issue, but small, unpredictable bumps – a small but critical part on back order that holds up bigger tasks, or fluctuating commodity prices. Reducing uncertainty may mean changing how much inventory a business holds or building a safety net into timelines and contracts.
Inflationary pressures will require a mental reset
Rising costs spurred by changing demand, inflation, labor tightness, and other factors have resulted in substantial inflation over the past few years. While it’s normal to have sticker shock, especially after the extremely low inflation rate of the previous decade, it’s important to remember that while inflation may moderate, and prices may even recede for a particular good or service, overall prices are generally slow to reverse themselves. Don’t wait for things to go back; revisit your projections to reflect current conditions and consult advisors on how to adjust your plans .
Find the best use for liquidity
During the last few years, many businesses found themselves with excess liquidity, either because of greater than planned revenues , stimulus funds, or increased valuation from investments. For those businesses, liquidity offers another opportunity to adapt and reduce uncertainty. That could mean an investment to acquire a competitor, expand the business, or increase efficiency. It could also mean maintaining cash reserves to rely less on increasing debt costs, engaging in hiring, or increasing inventory to meet demand while facing long lead times. The best application will vary by business and situation, but it’s an opportunity not to be missed in an uncertain economy.
Borrowing opportunities are there if you know where to look
If borrowing is crucial to your plans and the economic environment has you concerned, connect with your banker to discuss options – in recent years, the U.S Small Business Administration has created or expanded a number of loan programs to help businesses make critical investments and weather challenging conditions.
Uncommon economic events – even when they pile up – are no reason to put growth and innovation on hold. Challenging periods can even be the catalyst that helps a business find new opportunities. Alerus is ready to help you plan and prepare for the future. Talk to us today to see how we can help you reduce uncertainty in a complicated world.