We live in unprecedented times. Our entire society has been under attack from a virus and how it’s affected our lives, the economy, and the world that we live in. Governments have put together programs to save the economy, save businesses and save jobs. Business owners have shifted their businesses to survive, and the entire landscape of how we do business has changed. We work from home, we shop online, we meet on Zoom, our children go to school remotely on a computer monitor. We’re in the era of a new economic reality.
But even as we make changes in the way we live, work and relax, the future is ready to play out the next chapter in this saga. It’s not a matter of preaching doom and gloom, it’s bringing the reality to bear, and presenting a scenario that will force new changes to the way we do things, if we’re not prepared. Since March 2020, the government has taken steps to put money into the pockets of consumers and businesses. This has quite literally staved off a great depression that would have put millions on the street and closed tens of thousands of businesses. But that government largesse is ending. The people of this country, and its businesses are going to have to stand on their own two feet. Look at the three ways our lives will be affected in this next chapter.
Since the pandemic began, there have been significant benefits to families:
These payments and credits have allowed spending that would not have otherwise been possible. It has kept the economy moving with the purchase of food, household goods, clothing, gasoline. It has spurred home construction, home sales and remodeling on a large scale. But once this money is no longer available, everyone will have to be much more careful about spending. The focus will be on basic needs, survival expenses like food, housing, medicine. Discretionary spending, which has been strong, will be severely limited.
In spite of the fact that so many businesses have been shuttered because of the pandemic, hundreds of thousands have survived as a result of the government’s payments.
At this point, there is no expectation that additional funds will be available. Business owners will have to address variances in their normal business markets on their own. All that money has been given out, there is no more available, and it’s unlikely that congress will give out more.
Banks have been very generous with their borrowers and lenient on their terms. Many have followed the informal policy of “pretend and extend.” They have been flexible with their borrowers, waiving covenants, providing additional money through generous terms on borrowing base calculations, renewing loans with the “expectation” that business will return to normal.
But the regulators, who have been allowing them to be overly generous for the sake of the economy, cannot continue to provide the additional economic room for those liberal policies. Banks are businesses as well, and the government needs banks to return to the tighter, more realistic, credit policies. They are the foundation of the economy, and strong banking provides a solid base for businesses to operate and grow.
As these three situations come to reality over the next 3 – 6 months:
The next 18 months are going to be difficult as the economy finds a new stable base to operate from. But planning will allow the smart business owner to not only survive, but take advantage of opportunities:
Change is inevitable in our new economic reality. Whether it’s a growing economy with stifling competition that sharpens your creativity, or a pandemic and recession that force you to make changes to keep your employees whole and your business alive. The common denominator is your ability to evaluate the challenge, make changes, adapt, and find new paths through the jungle. The principles that operate a business are still the same. Control your cash, think strategically, care for your employees, and understand your numbers. Follow these principles, fight the good fight, and we’ll all be here to talk about it next year.
As the end of the fiscal year comes into focus, it’s time to put together plans for the upcoming year.
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