Survey of Puget Sound Businesses Highlights Response to Inflation, Labor Shortage
60% making major changes to products; more than 70% to boost pay and benefits
With an economy marked by rising inflation, supply chain disruption, technological advancements and workforce transformation, Puget Sound 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. Four in 10 companies in the Seattle region rank inflation and uncertainty related to COVID-19 or continued outbreaks as top-three concerns, the most frequently cited challenges. International conflict ranked next, with 35% listing it as a top-three concern, followed by the difficulty of talent acquisition and retention, with 34% doing so.
Workforce and supply chain impacts continue to pose challenges and are hindering growth for some businesses. Nearly two-thirds of the area’s businesses (65%) report having trouble finding qualified employees. And 70% say they faced longer delays getting the goods they purchased, keeping roughly 1 in 5 companies (22%) from getting needed goods in time to effectively run their business.
Despite the economic uncertainty and complexity of current challenges, 65% of Puget Sound businesses say they expect revenues to increase over the next 12 months, versus only 6% expecting a decrease. Similarly, about half (49%) note they think profitability will rise, compared with 13% estimating a decrease.
It’s clear in the data that Seattle-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.
From what Umpqua sees in the survey and 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. Nearly 9 in 10 Puget Sound businesses (87%) say they would find ways to automate repetitive tasks over the next 12 months, and 66% indicate they would find ways to digitize new areas of the business to improve efficiency. The notion of improving efficiency also relates to your security, as 78% 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.
Businesses have concentrated on cutting costs in recent years, so there might not be much more to trim. We now see most Seattle companies putting more effort than last year on ways to accelerate revenue growth. Six in 10 businesses say they will make significant changes to lines of products and services over the next 12 months. About half of businesses (49%) say they will make significant changes to their pricing models. These actions will allow for potentially higher revenues and help boost profits.
3. If you use debt to finance expansion, watch your leverage.
Roughly 6 in 10 Seattle companies plan to take on debt to invest in expanding the business (56%), while about half say they’re likely to use it for real estate. These are encouraging signs, as financing can allow enterprises to acquire other companies, purchase equipment for automation, and secure more office and warehouse space.
“In this climate, businesses should carefully consider how any new debt levels will impact cashflow,” says Tim Hoefel, Puget Sound market director for community and business banking. “The right amount of debt money at a reasonable cost allows owners to capitalize on opportunities that position them for growth without compromising their 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. Eight in 10 (82%) of Puget Sound businesses say they will increase pay over the next 12 months. Seven in 10 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 75% of Seattle area companies say they will offer more flexibility with remote-work options and 72% 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 Seattle companies are responding: 62% say they are looking for new suppliers to manage difficulties, 46% are implementing new inventory management techniques, and 45% are strengthening relationships with suppliers and partners. About 1 in 5 (17%) 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.