Four strategies to help you navigate disruption and sustain growth

In today's volatile markets, you need to both protect your business -- and give it a critical edge

 

6 minute read

Key takeaways

  • Business owners have seen their fair share of challenges; but there are still ample opportunities to grow the bottom line.
  • While inflation and rising prices are real concerns, taking an honest assessment of your financial condition is essential to your strategic planning.
  • In light of the business disruptions we’ve witnessed, business owners should look for ways to more efficiently manage suppliers and leverage digital solutions.

This year hasn’t been an easy one for business owners. With one headwind after another, it’s hard to decide whether the glass is half empty or half full. One minute you’re hopeful that the pandemic has become a thing of the past, and the next minute you’re trying to deal with drags on your supply chains, fears of recession and tough decisions about customers and the health of their balance sheets.

 

Fortunately, not all is doom and gloom. In fact, amid the disruption and uncertainty we’re all reading about, there are still a range of opportunities for sustaining your business’s growth in today’s economy. During a recent event, three Bank of America experts discussed this very topic, while offering innovative ideas for protecting your business and taking advantage of the current business climate. 

 

The search for a tipping point: Keep your eye on the state of the economy

 

On the macro level, the most pressing question today is whether the Federal Reserve will be able to curb inflation without tipping the economy into recession, suggests Jonathan Kozy, managing director and senior macro strategy analyst for the Chief Investment Office at Bank of America.

 

Still, those business owners who find themselves beset by labor shortages and forced to offer higher wages are caught in the middle of those efforts. Customers, however, may be put off by sky-high gasoline prices, sticker shock at the grocery and rising mortgage rates – but they still have plenty of cash to spend.

 

Beyond U.S. borders, the Ukraine conflict is fueling inflation in Europe, and China’s zero COVID policy is suppressing growth. “Inflation here probably hasn’t peaked, and it’s likely to be above the Fed’s 2% target at the end of the year, which could lead to more rate hikes,” Kozy predicts. However, he sees signs that labor market pressures may ease soon, with slower employment growth and job openings coming down. “Our hope is that the Fed can engineer a soft landing.”

“Navigating disruption, being flexible and thinking opportunistically today is absolutely necessary. Though there are myriad headwinds, we think the market is still pretty resilient, making the likelihood of a massive recession quite low. Still, if companies equip themselves by thinking about how they would manage through the tough times, they will be better prepared should the unexpected happen.”

Take a close look at your balance sheet

 

Amid those uncertainties, it’s important for businesses to make an honest assessment of their current financial condition, suggests Brian Wright, head of centralized commercial credit, enterprise credit for Bank of America Business Capital.

 

A chief concern is how rising interest rates will affect your business, according to Wright. Some companies – thanks to government stimulus, strong recent performance and access to capital at low rates – still have a lot of cash on their balance sheets. “They see this as an amazing opportunity,” remarks Henrik Lang, treasury product executive, Global Corporate & Investment Banking. Higher rates means their cash can work harder for them, adding to their bottom line.

 

Other businesses, however, have taken advantage of low interest rates to expand capacity, buy machinery and stock up on inventory, and now face rising costs of financing. “You need to have a view about how your balance sheet is going to be structured for the foreseeable future,” Lang suggests. That means looking not only at how much debt you’re carrying but also at the ratio of fixed-rate to floating rate financing. With interest rates moving up, some companies may feel they’ve missed the chance to lock in the lowest rates. “But trying to time the market is never the right thing to do,” argues Wright. “Having a fixed cost on a portion of your debt helps with forecasting and gives you a hedge against uncertainty.”

 

Reconsider your supply chains

 

Most businesses today continue to feel pressure from customers that had been accustomed to having orders filled almost in real-time. But what can you do when lead times back up? Wright highlighted the importance of having an honest dialogue with customers and managing expectations about what’s possible. But working creatively with suppliers and vendors is just as essential. “Consider partnering with vendors to lock in contracts at fixed prices and for specific quantities of products,” he suggests. At the same time, continue to line up alternative sources of supply to ensure that you can deliver what your customers need.

 

Managing your inventory can also help. That could mean selling existing stockpiles at today’s high prices. Meanwhile, though, companies may want to consider building up new stocks of goods to help insulate their business from supply chain bottlenecks and enable them to adjust prices according to demand. 

 

Speed up your digital transformation

 

Companies today are using technological advances to help them deal with labor shortages, improve their forecasting and provide real-time, transparent information to customers, suppliers and employees. Furthermore, digital capabilities have taken a quantum leap ahead during the pandemic. “Many of the businesses we work with have moved away from check-based processes because they’ve seen the savings and efficiencies that come from adopting digital technology and electronic banking services,” notes Lang.

 

But in considering your business’s digital transformation, merely automating your existing processes may not be enough. The companies that are getting the most out of digital are the ones that are rethinking how they do things. They’re asking their suppliers and vendors as well as their customers what would make operations better, and then they’re streamlining things and making them more efficient.

 

That kind of creative, forward-looking self-scrutiny can help businesses deal with other challenges today. No matter the unique challenges facing your business, make sure to look at the different stress factors and give serious consideration to how best to navigate your way through the turmoil.

Jonathan Kozy | Managing Director and Senior Macro Strategy Analyst for the Chief Investment Office, Bank of America

Brian Wright | Head of Centralized Commercial Credit, Enterprise Credit, Bank of America

Henrik Lang | Managing Director, Head of Global Liquidity, Bank of America