Economic Uncertainty: Four Initiatives to Start Now
As a middle-market CEO or executive, you have probably learned from first-hand experience how important it is to manage your business in the face of economic uncertainty. It would be nice if everything in business were certain and predictable, but that’s just not how the world works.
In a recent opinion piece in The Wall Street Journal1, Phil Gramm and Mike Solon put it this way: “Economic uncertainty and prosperity are sworn enemies – when uncertainty reigns, prosperity fades.” They point out that weak recoveries following the Great Depression of the 1930s and the Great Recession a decade ago were caused largely by economic uncertainty.
Political & Economic Uncertainty is Ratcheted Up
While there’s always a degree of uncertainty in business and world events, it seems like this uncertainty has been ratcheted up a few notches over the past couple of years. Here are three major uncertainties business owners and CEOs are facing today:
1. Political volatility
The election of Donald J. Trump as President threw a major wrench into “politics as usual” in Washington, D.C. We’ve had nearly a year and a half to adjust to a Presidency that’s unlike any our nation has ever seen, but it still seems like we’re always only a tweet away from the next big political firestorm to erupt from the White House.
Overseas, rouge nations like North Korea and Iran present a constant source of instability and uncertainty. There’s guarded optimism among many about the upcoming summit meeting between President Trump and North Korean dictator Kim Jong-un. Meanwhile, it remains to be seen what the political outcomes will be in the aftermath of President Trump’s announcement that the U.S. will withdraw from the Iran nuclear deal.
2. International trade policies
Gramm and Solon argue in the WSJ article that the Trump administration’s trade policies “have increased economic uncertainty to a level that threatens to bring back the stagnation of the Obama years.” These policies are “beginning to create a level of uncertainty that could imperil the recovery,” they write.
Gramm and Solon are referring specifically to the recently imposed tariffs of 25% on imported steel and 10% on imported aluminum. “The subsequent effects that would come from escalating retaliation are unknowable,” they write. Further, they believe President Trump’s threats to terminate NAFTA “create massive uncertainty by jeopardizing the North American export chain.”
3. Energy prices
After several years of relative stability, energy prices have shot up recently. According to CNN.com2, the decision by President Trump to exit the Iran nuclear deal has pushed crude oil prices above $77 a barrel, which is up 15% since the beginning of the year and 8% in just the past month. The CNN.com article notes that some analysts are predicting that oil will hit $100 a barrel next year – a price level we haven’t seen since 2014.
Avoid Analysis Paralysis
With so much economic uncertainty today, it can be easy for owners and CEOs to become afflicted by the dreaded “analysis paralysis.”
This happens when decision makers spend so much time thinking about and trying to plan for all the various things that could happen that they lose sight of the things they should be doing right now to grow their business – despite the persistent uncertainty that’s present in the world. For example:
Invest in capital expenditures (or capex).
Capex is the gasoline that fuels and sustains business growth. Whether it’s new computers or IT, heavy machinery and equipment, fleet vehicles or some other kind of equipment that’s critical to your business and industry, don’t let uncertainty keep you from making wise capex investments.
Perform research and development.
If capex is the gasoline that fuels business growth, R&D is the engine that propels it forward. You should have an allocated R&D budget that’s dedicated to funding research activities designed to uncover new business opportunities.
Hire new employees.
Your business can’t grow and expand without human resources – brains and brawn to put your capex and R&D expenditures to work and make your growth and expansion plans a reality. With the economy near full employment, it can be challenging to find and hire great employees, but this is a challenge you can’t afford to neglect.
Launch new product and markets.
Now it’s time for your investments in capex, R&D and human resources to pay dividends for your company in the form of new product and market launches that can increase your sales and profits.
Here’s the one thing you can’t afford to do in the face of uncertainty: nothing.
Businesses that freeze up – whether due to analysis paralysis or simply fear and hesitation to make critical decisions – will be passed by nimble competitors who take bold actions like those listed here.
It would be nice if everything in business were certain and predictable, but that’s just not how the world works. As a middle-market CEO or executive, you should be doing things right now to grow your business despite the persistent political and economic uncertainty that’s present in the world. The one thing you can’t afford to do in the face of uncertainty is nothing.
A part-time CFO or project CFO from a CFO services firm can help you implement strategies like those listed here to grow your business right now.
1 Trump’s Trade Threats Are Hurting Growth; Phil Gramm & Mike Solon; The Wall Street Journal; May 9, 2018
2 Oil prices could hit $100 a barrel next year, Bank of America says; Ivana Kottasova; CNN.com; May 10, 2018
Arthur F. Rothberg, Managing Director, CFO Edge, LLC
Six Steps for Overcoming Analysis Paralysis in Your Firm