• Jayne McQuillan

Economic Challenges Business Owners Need to Face Down


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Are we in a recession? Are we not in a recession? It depends on which economist you’re listening to!


Regardless, we can agree there is uncertainty. Owners are facing the highest inflation rates since 1981. The Fed continues to hike interest rates, rising over 2.25 points since 2020, to try to curb the wage and price spiral. All of this is occurring while talent is difficult to hire and supply chains are impacting operations.


Being a business owner in these adverse market conditions is challenging. So, what are some things you can do proactively to prepare your business?

  1. With rising interest rates being a significant challenge, chief financial officers need to focus on managing working capital and ensuring their company’s balance sheet is strong. Stay on top of accounts receivable collections, inventory turns, and stretch accounts payable to improve your cash flow. Also, extend maturities on short term exposures to more long-term financing.

  2. Whether we’re in a recession or not, even the threat of a recession is a pressing problem. To offset projected lower revenue, focus on reducing costs quickly to preserve cash flow. What are your most critical initiatives that will help you shore up your operations without jeopardizing essential functions? Keep your lenders informed of the changes happening in your business. Be proactive, as this will lay a foundation should you have a need in the future.

  3. Longer-term inflation is most worrisome. As stated, we haven’t seen this type of inflation since the early 1980s. Most current business owners weren’t business owners during the period of surging prices and labor shortages. Operating in a rising cost environment puts a premium on careful product pricing, controlling costs through deliberate purchasing, and managing working capital. The entire management team needs to be aware and operate in a coordinated way to address these challenges.

  4. With the continued challenges of finding and retaining talent, employee engagement is critical in these stressful scenarios. Convey to employees how the interest rates, inflation, or a recession could impact your business. Communicate, communicate, communicate. Also, solicit employee suggestions for realizing economies and engaging customers. They want to be part of solving the problem.

  5. With intense pressure to find and land superior staff, your human resources team should work with your management team to identify and retain your highest performers. This may also be a good time to pursue strategic talent acquisitions that would have proven impossible previously, and to recognize that younger talent seeks personal and professional development to further their careers.

  6. The Owner/CEO needs to convene their top executives to demonstrate the urgency of the current moment and gain their perspectives on the challenges affecting the business. They need to understand the implications on the entire operation, not just their silo, to get the company through a difficult period ahead.

  7. Focus on your Strategic Plan. Set aside day-to-day operations and step back to focus on what you see as the business’s future. If you have completed a strategic planning exercise, you will have thought through business goals and identified essential and secondary priorities as well as current and future risks. In stressful times, you will want to hoard capital that supports the most opportunistic initiatives and limit resources or curtail lower priority or riskier projects entirely. If you haven’t completed such an exercise, doing so now will give you confidence in the actions you’re taking and limit reflexive and short-sighted actions that will hurt the organization.

  8. If you’re looking to sell your business, rising interest rates and recessions typically lead to reduced volumes, and the deals done can be at a lower multiple. However, that said, high quality businesses with strong financial statements and good momentum can always find buyers. Continue to focus on the value drivers in your business – people, customer diversification, systems and processes, culture, and profitable growth.

  9. Lastly, if you haven’t already, develop a strategy for safeguarding your interest in the business or for transitioning it to accomplish your objectives. Developing a plan takes time, and if you haven’t done so already, this is the opportunity to start thinking strategically about maximizing the long-term value of the business you have worked so hard to create.

Without a doubt, these are challenging times to be a business owner. However, every challenge is also an opportunity. How you as a leader engage your internal team and advisors to strategize and execute on the economic challenges that are facing your business will determine your business value and success in the future.


 

Jayne McQuillan, CPA, MBA, Certified Exit Planning Advisor (CEPA) is the owner of Journey Consulting, LLC

Our firm is focused on providing business owners and their businesses with strategic planning, exit planning, financial expertise, and organizational improvement. We use a holistic approach within all of our services by aligning leadership with business strategy and outcomes.

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