Preparing for Economic Change: Post-Pandemic Business Picture

Preparing for Economic Changes: Post-Pandemic Business Picture

Preparing for Economic Change: Post-Pandemic Business PictureIn a post-pandemic world, business is not as usual.

Many things have already changed, and many more changes are poised to occur.

As Aldous Huxley implied with his 1932 book, it’s a Brave New World.

Recession

Yup, the recession is here. There’s unprecedented unemployment. Some businesses are closing for good. Things aren’t going to be good for a while. But there’s a bright side according to some economists (no one knows for sure):

  • It doesn’t look like there will be a depression. The $2.2 trillion stimulus package from the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which is the costliest legislation ever, will put a lot of money back into the economy and prevent a depression.
  • The recession likely won’t last long. No one knows for sure, but I’ve heard predictions of it waning as early as mid-Q3 (late summer) or early Q4. Recessions are a normal part of the business cycle, although this one was triggered by disease and not by poor economic decisions. So this recession, like all others, will pass.

New business models

Businesses are brilliant. They continually adapt to circumstances and find new ways to survive and grow. During this crisis period, we’ve seen:

  • Restaurants shifting to take-out
  • Businesses offering more delivery services
  • Retailers and e-tailers preselling through gift cards

Some of the new strategies likely will continue even after the crisis abates. Review your current business model to see where changes can be made to become more flexible/adaptable to future disruptions. For example, review your supply chain to expand your sources so you aren’t caught short when another crisis occurs.

Staffing

The CARES Act contains numerous incentives to keep employees on the payroll during the pandemic. Whether you have been able to do this so far obviously depends on your industry, your location, and the financial abilities of your company. But looking ahead, you’re going to need to staff up as business improves.

Consider using “boomerang” employees…those you’ve had to lay off or who quit. Engaging them is less costly than looking for new employees. You’ll save money on recruitment and training.

Interest rates

Actions by the Federal Reserve on March 15, 2020 (including slashing the fed funds rate to zero) to ensure that the economy doesn’t go into a recession by providing a variety of funding measures is sure to trigger higher interest rates in years to come. While we may not see double digit interest rates (my mortgage in 1981 had a 15.3% interest rate), we’re unlikely to see the nearly free money of today. What does this mean for you?

Take advantage of current low-interest rate loan programs while you can to get your business back in shape. Then build up your own cash reserves so you won’t need to borrow (or borrow as much) in the future. But keep lines of credit in place, just in case.

Inflation

The amount of the federal debt is sure to cause a rise in the rate of inflation. The average annual inflation rate between 1997 and 2020 was only 2.08%. But that’s likely to change. I can foresee a situation where business booms—manufacturing that had been done overseas moves back to the U.S., prompting labor demand. Pressure on wages helps to drive up inflation, although the Federal Reserves keeps an eye on it. We’ll have to see.

If there is inflation, be sure to adjust your pricing accordingly. You’ll be paying more for wages, goods, and services. To maintain your profit margin, increase your prices as needed.

Final thought

Two great quotations come to mind.

Lao Tzu said: “New beginnings are often disguised as painful endings.”

And there’s a famous Chinese saying that’s considered to be a curse:

“May he live in interesting times.”

These are certainly interesting times, but I don’t view it as a curse; it’s a blessing to be here and to have the freedom to adapt to this brave new world.

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