7/14/2022 8:00:00 AM | Business Success

National Survey Shows Impact of Inflation, Workforce, and Supply Chain Disruption on Phoenix Businesses

More than 7 in 10 planning significant changes to pricing, products and leaning into automation

With an economy marked by rising inflation, supply chain disruption, technological advancements and workforce transformation, Phoenix 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 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. More than 4 in 10 (43%) companies in Phoenix rank inflation as a top concern, with uncertainty related to COVID-19 also ranking high for 37%.

Workforce and supply chain impacts continue to pose challenges and are hindering growth for some businesses. Six in 10 of the area businesses report having trouble hiring workers. And 72% say they faced longer delays getting the goods they purchased, keeping roughly 4 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 Phoenix businesses say they expect revenues to increase over the next 12 months, versus 32% expecting a decrease. Similarly, 52% note they think profitability will rise, compared with 31% estimating a decrease.

It’s clear in the data that Phoenix-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.

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. Two-thirds of Phoenix businesses say they will find ways to automate repetitive tasks over the next 12 months, and 70% 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 63% of the city’s businesses say they will invest in financial tools to protect their payment systems.


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

More than 8 in 10 businesses (81%) say they will make significant changes to their pricing models over the next 12 months. And 73% indicate they will make significant changes to lines of products and services. These actions will allow for potentially higher revenues and help boost profits.

“Businesses have concentrated on cutting costs in recent years, so there might not be much more to trim,” says Kevin Gillette, Umpqua’s middle market banking director for Arizona. “We now see most Phoenix companies putting more effort than last year on ways to accelerate revenue growth.”


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

Half of Phoenix companies plan to take on debt to invest in expanding the business or 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 new 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. About 63% of Phoenix businesses say they will increase pay over the next 12 months. A similar amount— 68% — 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 6 in 10 Phoenix companies (59%) 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

Supply-chain impacts are intensifying, especially for small businesses, and Phoenix companies are responding: 63% say they are finding others to complete the work, 54% are strengthening relationships with suppliers and partners, 41% are finding new suppliers, and 15% 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