The past 18 months have been hard for many small businesses as the effects of the COVID-19 pandemic continue to plague several economic sectors. Fortunately, many industries have bounced back this year and are on track to even exceed pre-pandemic levels of success. However, there are three key roadblocks that small business owners need to navigate.
The first is an inability to hire enough employees. Many businesses in New Jersey (and across the country) are struggling to fill open positions, particularly within the hospitality industry. Business owners need to prioritize recruiting and retaining employees so they can fulfill customer demand. Many are utilizing incentives such as higher wages, greater work-from-home flexibility, and enhanced workplace and healthcare benefits.
The second roadblock stems from supply chain issues due to the pandemic and the disrupted inventory that results afterwards. Businesses should focus on ensuring they have sufficient funds to overcome these issues, whether that entails paying more to traditional sources or working to source from new suppliers closer to home.
The third issue is rising inflation, which continues to make products and supplies more expensive for both businesses and consumers. The Consumer Price Index shows that inflation increased 4.5% in June from the same time last year, its largest move since September 1991. Managing inflationary pressures may include focusing on receivable collections to shorten the working capital cycle, placing more emphasis on productivity and efficiencies, locking in interest rates on floating rate debt, and even considering small price increases to customers.
Overcoming these roadblocks means hiring good employees, keeping a keen eye on inventory, and ensuring enough money is on hand to purchase supplies in a timely manner so business owners can meet customer demand. There’s a common thread running through these priorities: steady cash flow and sizable cash reserves. The reality is that “cash is king” for any small business owner.
Companies with strong cash flow and liquidity will almost always fare better than those that fail to keep significant cash on hand, as they are better prepared to bridge any income gaps during hard economic times. They are also in a better position to take advantage of opportunities that may arise. Accordingly, it is important for business owners to work closely with their financial advisors and lenders to stay on top of their finances and to ensure they have the cash padding needed to handle inflation or further economic turmoil.
For businesses in a good liquidity position, now is a good time to consider investing in the business. Business owners can take advantage of low interest rates by purchasing new equipment or making improvements to their facilities. Doing so will set them up for even greater success.
About the Author
Michael Fitzgerald is market president, East Penn & New Jersey, of Univest Bank and Trust Co. He has over 30 years of industry experience helping business owners manage their financial needs.
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