Beginning with the profound impact of COVID-19 in early 2020, this decade remains fraught with challenges for business leaders.  The pandemic, which remains very much ongoing for many, along with geopolitical tensions, has contributed to supply chain disruptions and labor market challenges around the world, leading to nearly unprecedented levels of global inflation.  In turn, central banks are taking rather extreme, hawkish positions, vigorously raising rates to rein in dispiriting and potentially crippling price increases. However, such rate hikes will result in more expensive and limited future capital for investment, and ultimately another increased cost of doing business.

In a recent survey conducted by ITR Economics and ButcherJoseph & Co., we asked more than 650 business executives in the US how each of these challenges impact their companies and their decision making.  The most salient results are discussed herein, along with some interesting pivots to the data.

We polled executives on five separate business challenges: talent recruitment, interest rate changes, inflation, supply chain disruption, and geopolitical tension. Respondents were asked whether each challenge “greatly impacted”, “somewhat impacted”, or had “little to no impact” on their business.  It should come as no surprise that each of these likely impacts most businesses, regardless of industry, at least to some degree, so we pivoted the data to stack-rank the challenges based on percentage of respondents that indicated each “greatly impacted” their business. 

As can be seen in the chart below, geopolitical tension ranks lowest, likely a result of “NIMBY” (not in my backyard) mentality.  Next, as levels remain relatively low historically, interest rate changes were seen as a major threat to only one in five respondents.  Inflation and supply chain disruptions came next with 56% and 60% of respondents, respectively.  Topping the list was talent recruitment, with 85% of those polled indicating this particular challenge had a major impact.

For a variety of reasons, talent recruitment has been cited as a critical challenge to business executives not only in this survey, but also in our conversations with clients and prospects.  According to one anonymous CEO respondent at a transportation services company, “Labor shortages are not just a problem for us but seemingly for all businesses.  We are raising compensation and providing more flexible scheduling and on-the-job training in an effort to compete and retain talent.”

However, from an employee perspective, the tight labor market, which shows there are nearly two job openings for every one job seeker, has contributed to real personal income growth for consumers, a silver lining for the overall economy, to be sure.   

On a further positive note, despite the many and varied challenges discussed, a majority of executives are “cautiously optimistic” about the next couple years. In fact, nearly 50% of respondents said they felt the economy will improve and stabilize over the next 12-24 months vs. only 19% who answered that a recession was likely.

Focusing next on business plans for the immediate future and financial forecasting, approximately 90% responded they are planning for growth, either organically and/or via acquisition, with approximately 30% of relevant responders adding they will “definitely pursue” an acquisition at some point in the next twelve months.  Finally, when executives were asked whether they had a specific succession plan in place with a family member or relative, over 75% of responders did not, and indicated they expected to sell to a third party, management, or an employee stock ownership plan (ESOP) or were unsure entirely. 

Knowing how the value of your business is impacted by higher interest rates, a dynamic tax environment, and a volatile stock market is key to building out your growth strategy or preparing for a sale.  Our friends at ITR Economics provide business leaders with economic information, insight, analysis, and strategic direction, and have an uncommon understanding of long-term economic trends as well as best practices in preparation for a variety of market conditions.  Their team of economists has cultivated a comprehensive understanding of how economic trends impact business operations and are trusted advisors as you manage your business through economic cycles.

If you are contemplating a sale

If you are an owner/executive who expects to sell your business in the future or raise capital, ButcherJoseph can help.  We often begin the process with a complimentary Feasibility Study Analysis, which can help you understand the value of your company and the right type of transaction for you. To discuss further with our team, reach out to me directly at david.lake@butcherjoseph.com or at 314-720-6385.