7/20/2022 7:00:00 AM | Business Success

Study Finds Sacramento Businesses Making Changes as Economic Uncertainty Grows

8 in 10 planning for more automation, worker pay and benefits

With an economy marked by rising inflation, supply chain disruption, technological advancements and workforce transformation, Sacramento 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 uneasiness among metro-area enterprises right now. Nearly 6 in 10 (59%) companies in Sacramento rank inflation as a top-three concern, according to Umpqua Bank’s 2022 Business Barometer, an annual survey of small and middle-market companies nationwide. Among the respondents, 45% of Sacramento enterprises next most frequently cite international conflict as a top-three concern. Rising interest rates and uncertainty related to COVID-19 follow, with city businesses mentioning them both as a top-three concern 31% of the time.

Workforce and supply chain impacts continue to pose challenges and are hindering growth for some businesses. More than 6 in 10 of the area businesses report having trouble hiring workers, compared with 49% statewide. And 76% say they faced longer delays getting the goods they purchased, keeping roughly 1 in 5 companies from getting needed goods in time to effectively run their business.

Despite the economic uncertainty and complexity of current challenges, 54% of Sacramento businesses say they expect revenues to increase over the next 12 months, versus 23% expecting a decrease. Similarly, 57% note they think profitability will rise, compared with 15% estimating a decrease.

According to Chris Andrade, community and business banking market leader for Umpqua, Sacramento businesses haven’t been passive through recent disruptions and are becoming more adept at navigating an economy that’s constantly evolving.

“Right now, businesses are focusing on incremental changes that will accumulate and strengthen their position over the next couple of years,” Andrade says. “Above all, leaders need to focus on the basics. Make sure your current business model and strategy are hitting the mark — that you really know and understand your customer base and you’re meeting its needs.”

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. About 8 in 10 Sacramento businesses (78%) say they will find ways to automate repetitive tasks over the next 12 months, and 84% indicate they will find ways to digitize new areas of the business to improve efficiency. The notion of improving efficiency also relates to your security, as 74% 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 Sacramento companies putting more effort than last year on ways to accelerate revenue growth. More than 8 in 10 businesses (82%) say they will make significant changes to their pricing models over the next 12 months. And 72% 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

About 62% of Sacramento companies plan to take on debt to invest in expanding the business, while about 4 in 10 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 making that next loan, 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 83% of Sacramento businesses 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 75% of Sacramento companies say they will offer more flexibility with remote-work options and 78% 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 Sacramento companies are responding: 69% say they are looking for new suppliers to manage difficulties, 53% are switching to new products, and 55% are identifying other partners to help manage supply chain impacts. About 33% of companies that had supply chain problems have implemented new inventory management techniques over the past year, and 1 in 5 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