Arise2Live Podcast
Transcript for Episode #152 ‘2022 Outlook for Business Owners’
Host: Scott Weaver
Date Feb 9, 2022
Intro: Welcome to Arise2Live Podcast, episode 152. Curious about what 2022 might have in store for business owners? Scott helps you prepare by sharing three big economic headwinds and one potential opportunity. Arise2Live’s purpose is to bring clarity and perspective so you can avoid pitfalls and be prepared for growth. Let’s get started with today’s episode.
Scott R. Weaver:
Today’s episode peeks into the short-term future, in about 6 months or so, by covering three economic headwinds that are likely to impact your company’s performance so you can prepare for a successful year. Also, there’s a quick reminder about SBA loans and some business stats on what businesses are doing now regarding labor costs and pricing.
Hello everyone, I am Scott Weaver, the Arise2Live business coach. Thank you for listening in today. I really appreciate that. Please share this podcast to other business owners that may find this useful.
I should say up front that when talking about the economy, especially in the big picture, there’s a lot of data that needs to be presented to provide useful context and meaning. Today is more of an educational approach so you have the perspective to make better decisions in your business.
I’ve been doing these trend podcasts since the early days of the Arise2Live show and to be honest, this year is the most confusing, unpredictable trends and headwinds I’ve seen. Yes, even more than spring 2020 when the lockdowns came about. In some ways it was much harsher, but simple trend: ‘Business will adapt or die.’ Now in early 2022, I can’t say if things will be better or worse by the end 2022. There’s some pretty significant headwinds that are coming, but there’s also some potential significant opportunities coming too.
It’s like trying to find the middle between the pandemic ending (mostly) with the highest inflation we’ve had for 30 plus years. I’m not sure where the middle is. However, if we have the knowledge to prepared, then the possibility greatly increases to have a good year .
I’ll start out with a quick reminder the PPP and EIDL loans. You may need to take action sometime this year because the 2-year mark is coming up for a lot of business owners. There is a good chance that if you have an EIDL loan, you will start to pay it back starting this year. Note that they have been charging interest every month since you got the loan. If you have a PPP loan, it may be forgiven and that is an awesome deal. But the rules have been changing so please check at the SBA website. I have a link in the show notes to it.
On to the main topic. Three headwinds facing business owners this year. 3:20
First headwind: The supply-chain problems
We’ve heard a lot about those. Knowing how big a mess this is will help you set the proper low expectations that it will go away anytime soon. The devil is in the details.
I think in many ways the Ports of Long Beach, California, and Port of Los Angeles are the epicenter of the problem. A bit less than half of US imports comes these two ports and they are huge. They are also the major chokehold on goods getting into the U.S. In January of this year, there were 60 something cargo ships that where anchored out in the bay waiting to be unloaded. And that is one of the first signs how big the mess is.
A case can be made that the trigger point for the supply-chain problems came was when the Asia producers and manufacturing came out of COVID shutdown, they cranked out products to meet pent-up demand and exceeded the ability for the ports to load and unload, resulting in a huge jam of shipping containers. Then a host of follow-on problems were exposed.
Even with the backup jam going on for months and months, the ports are still not operating 24 hours a day. Reasons range from union resistance, under investment in upgrading port equipment, profiteering from international ocean shipper by not returning empty cargo containers that hogged up space on the ports so you couldn’t unload. There is a lack of trucks and truck drivers due to huge liability risks for trucking companies. If you haven’t noticed already, all of these are human caused.
The situation was so bad, that in November, the officials at these ports brought in the hammer and imposed new fines: Any idle (i.e. empty) container sitting around after nine days on the port, the ocean carrier got fined $100 for the first day, $200 for the second day, and so on. That’s per container. Guess what the result was? Clogging containers were reduced by 40% at Port of Long Beach and 60% at the Port of Los Angeles. Yeah, this is only one example of the mess.
Hopefully I wasn’t too long winded, but that shows a little of what we are up against.
So what does all this mean for us small business owners? Well, last year’s supply chain mess is not going away any time soon, so adjust schedules and budgets because of it. Educate customers on expectations. Shipping costs are likely to remain ridiculously high, so maybe find U.S. suppliers. Plus, you’ll likely have to pass the cost increases to the customers. More on this later.
Second headwind is Inflation. Or rather, Inflation containment and reduction is likely going to be the main driver of budgets in the private sector. Yay. Just what you wanted to hear.
If you thought the supply-chain problems were messy, dealing with inflation is worse. That’s because inflation is the result, the by-product, of many factors and decisions of many, many people which I’m not going into detail of those factors.
A very simple example is this: Inflation is too many dollars chasing too few products. If you want something and have lots of money, there’s no problem paying an extra 10%. Normally, that means you’re rich and nobody cares if rich people pay more. However, if 10’s of millions and millions of people have extra dollars and can pay an extra 10%, and then there’s a product shortage because, let’s say, by supply chain problems, well, prices will raise to meet demand and inflation starts. These millions of people aren’t rich, they can pay an extra 10%, but will have problems to pay an extra 15%. But some people can and prices go up more, but not as many people will buy the products, lowering demand. Now there’s even less products on the market. A downward spiral begins.
The bottom line is the U.S. has it’s highest inflation rate in 40 years, running about at about 7% and this is a very bad trend for businesses.
A Double whammy is likely coming this year: 8:22
1) First whammy is the Federal Reserve (U.S Gov’t bank) will raise the prime rate. Many expect a quarter point raise in March and more coming later. This results in higher interest rates on loans, particularly variable interest loans, new mortgages, etc.
2) The second whammy is the Gov’t stimulus money is ending—that has been a big source of extra money for millions of people. There is the potential that ending these programs could cause a similar downturn in the economy as what happened at the ending of the stimulus program during the 2008 Great Recession. There was a drop in the economy, about two or so years after the downturn started. And now, two years is coming up after the pandemic hit. Both of these headwinds takes dollars out of the economy.
So, if there is less money available in the economy (liquidity is the fancy name) means less money for business loans. Loans are harder to get and cost more.
Here’s some potential action for business owner to take. I suggest you double check your work before you proceed and/or talk to your CPA.
1) Look into your business needs and lock in a low interest loan or get Line-of-Credit before the government tightens the money supply. Remember, it’s more than just paying higher interest rates. There may be a reduction of banks willing to lend to small businesses.
2) Budget for paying higher payments on variable loans, credit-cards, and line-of-credits, car payments etc.
3) Payoff loans early if your budget allows it and doesn’t hurt working-capital or capital investments to grow.
4) Expect to pay more for everything and adjust future budgets to prevent cash-flow problems.
The point here is that borrowing to leverage business growth to bring in more revenues can be good. Borrowing money to spend money is not good. So please be smart about it.
Third Headwind: The Labor Force or Work-Force problems 11:00
I see this likely continuing into the future. I think it will hopefully level out but we’ll see what happens. The reasons behind it are there are a couple factors in play, and these might be controversial. So feel free to disagree.
Wages, the average wages especially those in the low end, from 2000-2019 did not keep up with inflation, meaning a low-wage job in 2000 could buy more than that same job in 2019. I see this latest wage increase as adjustment to return to normal. That is, wages returning to historical normal buying power that’s happening over a short period of time. In the long run, this adjustment is a good thing. But short-term, it’s a big grizzly bear to business owners. So hang in there.
I think there are factors in play between Covid, schools, working parents, and day-care closings. The number of workers could have been reduced because of flaky school districts closing and opening willy-nilly. If a household was barely getting by working at a lower wage job and paying for child-care, the lockdowns and closing child-care centers trained these households to survive without that lower-wage job and rewarded by spending more time with kids and family, who may or may not have to go to school. So, the end result is less people looking for jobs. People have left the labor force.
I have one Prediction trend, I’m curious if this will happen soon or not: There will be a move towards character-based hiring over skills-based hiring. Or in other words, find good people and train them. We do live in an era of labor shortages, yet too many big corporations are treating people like plug-in-play machines, not as people. So that businesses that treat people better than machines should have an edge in the labor market. Additionally, good bosses are more important than ever, which gets back into character.
Fourth trend: Ending of the Pandemic 13:34
When we look into the crystal ball, there is optimism that the pandemic could end sooner than later. This doesn’t mean COVID is gone, or disappeared, but not at previous levels. If this happens, this alone can create new opportunities that could completely offset the previous three headwinds.
For example, there is a trend in businesses of purchasing new capital equipment particularly to automate certain jobs. When a business does this, it lowers the impact of labor shortages and labor cost and at the same time can increase productivity. We are talking about increased buying of computers, robots, and machinery, etc. However, supply issues will damper the installation. There’s opportunities in this equipment upgrade in a lot of business whether you are the supplier or you are doing the upgrade to improve the business.
With the pandemic ending, potential labor shortage should decrease. This is because the Government stimulus is ending and more people will just have to go back to work. And the vaccinated status would not matter as much as it does now.
A side note with the pandemic ending, the Quality of Service can be a differentiator and a competitive edge especially in a world that has gone faceless on-line. There is very little interaction. As the economy comes out of the pandemic, people will gravitate towards businesses that has quality of service.
So how does operating in an economy with higher productivity and steady labor costs sound to you? Sounds like some opportunities could be coming.
Finally, here’s some national stats on how businesses are taking action. 15:33
These are after surveys have been taken so this is looking into the past about 6 months or so.
These are from National Federation of Independent Businesses:
Their Small Business Optimism Index dropped a bit (1.8 points to 97.1) last month, the lowest reading in about a year. Which doesn’t seem that bad. Concern for the headwinds, but not so much to generate panic.
61% of the businesses have increased average selling prices…Highest since late 1974 during the Arab oil embargo days. It’s been that long ago that that many companies have raised prices. Note average, so special pricing and competitive pricing is still going on.
11% of the businesses said labor costs are their biggest problem, 23% are concerned about labor quality.
27% of the businesses planned to increase compensation in the next 3 months, about 50% already had (a 48 year record).
There is a lot of almost historic data coming out of here. On these stats, how does your business compare with these national statistics?
In closing I know this is a big info dump in four areas facing business owners: supply-chain problems, inflation, labor issues, and new opportunities when the pandemic ends. I know there’s a lot going on, but top business owners are not in the dark about what the economy is doing. I hope this episode launches you into preparing for the future of meeting your business needs and growing in doing better.
At the end of the day, business owners can’t be sloppy with their finances because there is raising expenses, increasing loan costs, and capital costs are increasing. All these can present a huge risk and could turn a business sideways rather quickly. It’s also important to develop a competitive edge by keeping employees motivated and customers well served. Those are big chores to do and will take thinking power and effort to make it happen in your company.
However, with all these headwinds, keep one eye out for new opportunities…I think they will show up in many industries this year…maybe some big ones. I don’t know think anyone knows exactly what they will look like, but keep your eye open anyway.
This is where being prepared for the future really pays off. I encourage you to keep the pace and don’t get discouraged because this year is a year to Arise2Live.
If you are experiencing confusion creep because of an outdated business vision, Scott has released a new coaching package on creating your vision story that aligns business and life. Race into the future with a clear vision and direction. Check out the details at arise2live.com/vision.