Written by Brian Moran – Sage Blog – January 2022
It’s time to break out the crystal ball to see what 2022 has in store for business owners. Will this year finally bring us relief from coronavirus in its many forms? Will taxes go up? Will inflation go down?
There are so many variables in play for businesses of all sizes. I worry about the ones without the necessary resources or guidance to help them navigate all the twists and turns that 2022 will bring, especially in the early part of this year.
If you are a business owner, or know one who is worried about the near future, share this post with them. I may not have all the answers, but the questions alone will give you what you need to create your own answers and figure out how to best respond to the biggest hurdles you could face in the next 12 months.
Here are the four most common questions that keep business owners up at night—and my advice on how to get a better night’s sleep:
1. What is the Ripple Effect?
The “ripple effect” occurs when the normal flow of business is interrupted, and it affects every stage downstream. The ripple effect can be found in labor, supply chain, and inflation (to name a few areas of concern).
The question you need to ask is “what will the ripple effect do to my business?” Every time you read a business article, listen to a podcast, or watch a webinar, use the ripple effect to connect the dots on what is being said to your business.
Inflation in China? What does that mean for my retail business in Chicago? Coronavirus outbreak in India? Will that hurt my company in Indiana? The quick answer may be “no,” but if your wholesalers or partners do business in those countries, it could have a negative impact on your business.
Tip: Play the “What If” game with your business to spot potential ripple effects. For example: “What if my wholesaler’s supplier has to shut down due to the pandemic. How will it affect my business?” Or “What if I own a landscaping company and my customers get hit by a natural disaster? How long will my projects be delayed? Am I caught up with Receivables?” Your answers to all the “What If” questions could make the difference between getting knocked down in business versus getting knocked out of business.
2. Will the labor shortage continue this year?
The quick answer is yes. But depending on your business, there are options for dealing with a smaller labor pool.
Can you automate any part of your operations, like customer service or inventory control? This would allow your employees to focus on areas of priority for your company. Can you outsource any part of your business? This option also helps deal with having fewer employees.
Tip: Have you tapped into new sources of labor—retirees, friends and family, parents returning to work? One way to find new employees is by offering them the opportunity to work remotely. It is now a competitive advantage for business owners, and a reward for employees.
3. When will my supply chain get back on track?
Probably not as soon as you would like it to be. Everything is backed up! Container ships are sitting out at sea, trucks sit in parking lots waiting for drivers, and shelves sit barren waiting for products.
Tip: This is a painful example of the ripple effect. To counter that, I recommend that you look at alternative options for sourcing materials or buying goods this year. The closer to your home base you can find them, the better chance you have of minimizing the ripple effect.
4. Will Inflation Go Down in 2022?
According to the Federal Reserve, it should, but not right away. They plan to raise interest rates up to three times this year to combat skyrocketing inflation—last November’s rate was the highest in 39 years.
The first increase is planned for March, which means higher interest rates on everything from credit cards to lines of credit.
Higher inflation creates higher variable costs for your business. Gas, shipping, materials, and so on will all be more expensive this year. Until we can get coronavirus, supply chain, and labor issues under control, inflation will continue to hover above the 5% rate, when ideally we would have it under 2%.
Tip: Assume higher variable costs in the first half of this year. If they turn out to be lower, that means better cash flow for your company. If not, then you won’t have to deal with negative cash flow because you built higher costs into your plan.
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