7/18/2022 8:00:00 AM | Business Success

National Business Survey Highlights Response of Bay Area to Inflation, Changing Economy

8 in 10 companies leaning into more automation, digitization to drive efficiency

With an economy marked by rising inflation, supply chain disruption, technological advancements and workforce transformation, Bay Area companies are taking steps to shore up their finances, while steadily repositioning for future growth.

Umpqua Bank recently took the pulse of area businesses as part of a comprehensive survey to gauge the mood, mindset and priorities of company leaders, and sees both realistic and encouraging results as they adapt to challenges.

As expected, there’s a measured level of caution among metro-area enterprises right now. Nearly 6 in 10 (59%) companies rank inflation a top concern, with international conflict and stock market volatility also ranking high for 32%.

Workforce and supply chain impacts continue to pose challenges and are hindering growth for some businesses. More than 5 in 10 of the area businesses report having trouble hiring workers (53%). And 72% say they faced longer delays getting the goods they purchased, keeping roughly 3 in 10 companies from getting needed goods in time to effectively run their business.

Despite the economic uncertainty and complexity of current challenges, 47% of local businesses say they expect revenues to increase over the next 12 months, versus 10% expecting a decrease. Similarly, about half (49%) note they think profitability will rise, compared with 12% estimating a decrease.

It’s clear in the data that Bay Area businesses haven’t been passive through recent disruptions and are becoming more adept at navigating an economy that’s constantly evolving. They are focusing on incremental changes that will accumulate and strengthen their position over the next couple of years.

“Companies are adapting, looking hard at both reducing operating cost and growing the right way,” says Aamer Pervaiz, Bay Area regional director of middle market banking. “Now may not be the right time to take big risks, but opportunities are there for companies that have a strong cash position and are patient.”

Based on insight from Umpqua’s survey and what the bank sees on the ground, here are five strategies for area businesses to consider as they meet today’s challenges and plan for tomorrow:


1. Automate and digitize incrementally to increase productivity

The pandemic has accelerated the need to automate. Now is a good time to focus on low-hanging fruit — ways to improve efficiency that are relatively easy to implement at low cost. Identify these opportunities and tackle them one by one, which will make a big difference over time. About 8 in 10 Bay Area businesses (79%) will look to automate repetitive tasks over the next 12 months, and the same number (80%) indicate they will find ways to digitize new areas of the business to improve efficiency. The notion of improving efficiency also relates to cybersecurity, as 73% say they will invest in financial tools to protect their payment systems.

According to Pervaiz, “Current market conditions have expedited the need for increased automation to improve efficiencies and reduce reliance on labor, especially in areas where cost of living is high. Robotics are more prevalent not only in manufacturing but also in warehouse and distribution.”


2. Hedge against inflation by focusing on the revenue portion of the income statement

Businesses have concentrated on cutting costs in recent years, so here might not be much more to trim. We now see most companies putting more effort than last year on ways to accelerate revenue growth. More than two thirds of local businesses (68%) say they will make significant changes to their pricing models over the next 12 months. And the same number (68%) indicate they will make significant changes to lines of products and services. These actions will allow for potentially higher revenues and help boost profits.


3. If you use debt to finance expansion, watch your leverage

More than 5 in 10 Bay Area companies (54%) plan to take on debt to invest in expanding the business, while about half (49%) say they will use it to buy real estate. These are encouraging signs, because financing can allow enterprises to acquire other companies, purchase equipment for automation, and secure more office and warehouse space. Before securing financing, however, carefully consider how your new debt levels will affect your ability to grow down the road. The right amount of debt money at a reasonable cost allows you to capitalize on opportunities while preserving your cash balance.


4. With recruitment, be aggressive, but play to your strengths

 Labor is typically a company’s biggest line-item expense. It’s important to evaluate your compensation structure, understanding that losing employees and recruiting new ones will likely be more costly. Almost 8 in 10 local businesses (76%) say they will increase pay over the next 12 months. A similar amount (79%) note they will hire for new skills to build internal capabilities. But know what you can afford. What else can you offer that would be less expensive than salary increases? About 8 in 10 Bay Area companies (79%) say they will offer more flexibility with remote-work options, and 66% indicate they will find creative ways to support working parents. Lean into what appeals most to your employees.


5. Prioritize supply-chain efficiency

Pervaiz notes that “Bay Area companies are thinking very strategically about supplier relationships.” That’s because supply-chain impacts are intensifying, especially for small businesses. More than 5 in 10 are switching to new products, 46% say they are finding new suppliers to manage difficulties, 45% are strengthening relationships with suppliers and partners. A small portion (13%) are seeking inventory financing. Tackling even one of these modifications is progress and can improve efficiency and lower costs for your business.

Stay focused and remain cautious as you pursue your growth strategy. Relying on key business partners is critical, especially since they can assist you with increasingly sophisticated ways businesses must now operate to be competitive in these periods of disruption. Bankers can give you an outsider’s view of your company, since they have a landscape view of so many industries. Talk with your banking team, not only for advice on financing, but also on broader strategic issues that will be important to get right in these challenging times.

Read Umpqua Bank’s 2022 Business Barometer