Curious about what 2022 might have in store for business owners? Today’s episode peeks into the short-term future, in about 6 months or so, by covering three economic headwinds that likely will impact your company’s performance so you can prepare for success this year. One potential big opportunity and three economic headwinds are covered. Also there’s a quick reminder about SBA loans and business stats on what businesses are doing regarding labor costs and pricing.
Business owners can’t be sloppy with their finances because raising expenses, loan costs, and capital costs are a huge risk and could get a business quickly sideways.
Borrowing to leverage revenue increases can be good. Borrowing to spend money is not good. So please be smart about it.
First headwind: The Supply-chain Problems
The devil is in the details. Knowing how big a mess this is will help you set proper future low expectations and accept that last year’s supply chain mess is not going away any time soon.
What does all this mean for us small business owners?
- Adjust schedules and budgets.
- Educate customers on expectations.
- Shipping costs are likely to remain ridiculously high.
- Maybe find U.S. suppliers.
- Likely have to pass the cost increases to the customers.
Second headwind is Inflation
A simple definition: Inflation is too many dollars chasing too few products.
A double whammy is likely coming:
- The U.S Federal Reserve will raise the prime rate. This results in higher interest rates on loans, particularly variable interest loans, new mortgages, etc.
- Govt stimulus money is ending—that has been a big source of extra money for millions of people.
Some potential action for business owners to take:
- Double check your work before you proceed and/or talk to your CPA.
- Look into your business needs and if it makes sense, lock in a low interest loan or get Line-of-Credit before the government tightens the money supply. Reminder, it’s more than just paying higher interest rates. There may be a reduction of banks willing to lend to small businesses.
- Budget for paying higher payments on variable loans, credit-cards, and line-of-credits, etc.
- Payoff loans early if your budget allows it and doesn’t hurt your working-capital and capital investments.
- Expect to pay more for everything and adjust future budgets to prevent cash-flow problems.
Third Headwind: The Work-Force Problems
Likely continuing in the near future due to couple of subtle underlying factors in play.
- Could be that wages are returning to historical normal buying power. Wages From 2000-2019 or so did not keep up with inflation, meaning a low-wage job in 2000 could buy more than in 2019. The economy could be ‘fixing’ that.
- Less people looking for jobs due to inter-play factors between COVID, schools, working parents, and day-care closings. Willy-nilly school closing and openings forced parents to stay home. If a household was barely getting by working at a lower wage job and paying for child-care, the lock-downs and closing of child-care centers trained these households to survive without that lower-wage job and were rewarded by spending more time with kids.
- Predicted trend: Increased character based hiring over skills based hiring.
Opportunity: Ending of the Pandemic
How does operating in an economy with higher productivity and steady labor costs sound to you? Sounds like some opportunities could be coming!
There is optimism that the pandemic will end sooner than later—doesn’t mean COVID is gone. This alone can create new opportunities that could completely offset the previous three headwinds.
- A trend-Purchase of capital equipment to automate certain jobs. This reduces the impact of labor shortages and can increase productivity. However, supply issues will damper installation. So there’s opportunities in being a supplier and upgrading.
- With the pandemic ending, potential labor shortage should decrease Because of the government stimulus ending, more people will have to go back to work. And hopefully vaccinated status will not matter as much.
- With the pandemic ending, quality of service becomes a differentiator, and could be a competitive edge in a world of faceless on-line interaction.
Links to Resources
- Link to SBA COVID-19 Loan Info
- Link to SBA PPP Loan Forgiveness Info
- LA Times: Supply Chain Problems
- US News: National Federation of Independent Business Data
- Forbes: Business capital Spending Info
- Forbes Impact of Rising Interest Rates
- Fidelity: Fidelity’s Outlook (lots of data)
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