On the heels of a pandemic, businesses are faced with a challenging environment in terms of both economic and societal shifts.
First, a series of interest rate hikes and the inversion of the yield curve have dampened both consumer confidence and business investment. The most recent data shows inflation at close to 40-year highs with the September Consumer Price Index increasing more than 8.2% year-over-year. Although showing signs of slowing, most feel that the increased costs of goods and services will remain higher for a longer period than originally expected, despite the Fed Reserve’s efforts to reverse the trend. Most economists feel that the country’s GDP for 2022 will fall under the historic average of 3.14%, and may be even flat for 2023. Inflationary pressures are threatening profit margins, as business owners struggle with passing along those costs to clients.
Additionally, the labor market and supply chain challenges continue to be an impediment to successfully running a business on Long Island. A quick review of the labor market shows that the availability of qualified labor is low, while the willingness of labor to engage in traditional workforce behavior is waning. The obvious ripple effects of the pandemic have contributed to this phenomenon, as businesses struggle to attract and retain employees. Long Island’s unemployment is hovering around 3.3%, which is below the national average of 3.7%. On the supply side, there seems to be a stubbornness to unclog the dam that was created by the pandemic with very little optimism for relief. Business owners are operating under a new norm, trying to come to terms with the fact that operational activity may never go back to the “way it used to be.”
Given the headwinds expected on a national level and here on Long Island, there are a number of proactive measures a business can take to navigate this challenging environment.
The term “communication is king” has never been more critical in times of economic stress, and for business owners there are three key groups where effective communication strategies need to be deployed. The first are your business’ clients. Find out what stresses they are feeling and ask about their expectations of you in your role in the business relationship. This dialogue can often lead to a modification of a relationship or even expanded business. Be frank with your abilities to provide products and services to them and assure them of your desire and willingness to work together. Now is the time to build that long-term trust.
The second are your suppliers and vendors. You may discover opportunities to diversify your supply chain and think of alternative options. Challenge them – share with them the issues that you may be experiencing or your thoughts about where things are headed. It is always best to have a game plan in advance, so that there is some form of direction as the outcome unfolds.
The third, and most important, group are your employees. Constant and consistent messaging about the direction of the business pays huge dividends if you start to experience choppy seas. Transparency around strategic direction will address any concerns and provide comfort to the individuals most critical to your operation. Taking the time to shape a direct and transparent culture is even more imperative, given the labor situation identified above. Employees that feel part of your business are much more likely to remain loyal, stretch and adapt during challenging times, and ultimately help you through the cycle. Consider in your strategic plan optionality for training if business slows, and don’t forget about cross-training opportunities. The more interchangeable parts you have, the more flexible and nimble your company can be.
We’ve learned in the past few years to expect the unexpected. While we may not know exactly what’s ahead of us, communicating with key audiences helps to create stability in the areas of business you can control.
Kevin Santacroce is senior vice president/senior credit officer of ConnectOne Bank.