Provided by Umpqua Bank
With an economy marked by rising inflation, supply chain disruption, technological advancements and workforce transformation, San Diego 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 (56%) companies in San Diego rank inflation as a concern , with international conflict (45%) and uncertainty related to COVID-19 (35%) ranking high, as well.
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 (63%). And 77% say they face longer delays to get 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, 58% of San Diego businesses say they expect revenues to increase over the next 12 months, versus 10% expecting a decrease. Similarly, 50% note they think profitability will rise, compared with 24% estimating a decrease.
According to Kris Ilkov, Umpqua’s Southwest Regional Director of Middle Market Banking, businesses are dealing with inflationary pressures that have evolved into larger concerns about overall economic growth and contraction.
“The rapid and delayed rise in short term interest rates has impacted the consumer, housing, financials markets and commodities. There’s a new set of challenges that position companies into more of defensive posture while strategically and diligently evaluating growth opportunities,” said Ilkov. “In this environment, being disciplined and strategic to achieve efficiencies and position the business for future growth is very important as the economy continues to change.”
Based on Umpqua’s survey and what the bank sees on the ground with customers, 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 San Diego businesses (79%) say they will find ways to automate repetitive tasks over the next 12 months, and 74% 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 69% 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 San Diego companies putting more effort than last year on ways to accelerate revenue growth. Almost two-thirds of businesses (65%) say they will make significant changes to their pricing models over the next 12 months. And a similar number (67%) 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 6 in 10 San Diego companies (58%) plan to take on debt to invest in expanding the business, while about half (52%) 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. More than 8 in 10 San Diego businesses (84%) say they will increase pay over the next 12 months. A similar amount (86%) 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 7 in 10 San Diego companies (73%) say they will offer more flexibility with remote-work options and 67% 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 San Diego companies are responding: 58% say they are looking for new suppliers to manage difficulties, 51% are finding others to complete the work, 48% are strengthening relationships with suppliers and partners, and 47% are switching to new products. About one in five (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.
To read Umpqua Bank’s 2022 Business Barometer, visit: https://www.umpquabank.com/business-barometer.
