In an effort to tame inflation, the Federal Reserve has consistently hiked interest rates throughout the year. Earlier this month we saw another 75 basis point hike and with it the 6thth Hike of 2022 and it probably won’t be the last. Additionally, according to a recent McKinsey report, 81% of executives see a recession on the horizon. With the Fed expected to continue raising rates into the first half of the new year, it’s more important than ever for business owners to prepare, stay alert, and be prepared for what next year may bring.

Fed Chair Jerome Powell hinted in an earlier statement that battling inflation is likely to cause some pain for both consumers and businesses and that it won’t be easy in the coming months.

Over the years at ConnectOne Bank we have weathered some tough economic storms with our clients and we have often seen businesses emerge from them even more resilient – but proper planning is necessary to succeed.

Businesses today are in a stronger position compared to previous challenging times. Consumer spending is resilient and savings rates have increased despite changing market dynamics. Businesses have marginalized cash – meaning liquidity is plentiful and the economy, though slowing, is still strong. All things considered, however, these things can change at any time, which is why now is the time for companies to strengthen their strategy so that they are in a better position to weather what is coming.

2023 is about the “Survival of the Financially Fittest”, which is why we ask our customers the following three questions:

· Are you transforming your business to think about what your customers really need?

· Do you work efficiently?

· Are you thinking about the opportunities that are out there?

As a business owner, now is the time to have open and honest conversations with your bank and financial advisors. First, we advise our clients on how to be resilient in a recessionary environment. Below is our advice for business owners as we head into the new year.

1. Evaluate the necessary changes

Consumer needs are changing more often than ever. It may be necessary to analyze your business model and change direction in order to survive in a slowing economy. Focusing on what consumers really need and value ultimately impacts a company’s success. Consider implementing new ways to engage with your customers. Whether it’s through loyalty programs, new offers or rewards, improving your customer experience can increase profits, increase satisfaction and referrals.

2. Focus on efficient growth

Businesses now need to focus on how to become more efficient in everything they do and try to find ways to become more profitable so they can attract more capital. We’ve watched business owners digitize many of their operations while expanding their talent base during the pandemic. Changing times present companies with an opportunity to consider how they can continue to grow and generate revenue without increasing expenses. In some cases, this means a change in product strategy, in others it may mean refocusing efforts on areas where the company is producing well.

3. Cash reserves are king

The idea of ​​companies holding cash on their balance sheets wasn’t as common before because they earned 0% interest — today, those with cash reserves are in a sufficiently strong position to take advantage of new growth opportunities as they arise. For those who don’t have cash on hand, it’s time to start thinking about where to find it. Look at your incoming and outgoing transactions and consider how a downturn could affect your financial situation. Consider stress testing your business to predict where you may be hit hardest and what your lifeline is. There is plenty of liquidity in the market, but the ability to borrow is changing – companies need to be careful not to overextend themselves.

4. Stay nimble and opportunistic

We have accompanied and supported companies through several changing economic cycles. While they can be difficult to navigate, there are often still opportunities for those willing to be agile and seize the opportunities in the market. Know what you are financially able to do – now is not the time to take big risks. Talk to your bank or a reputable institution that knows the market you are exploring and discuss your options.

As we enter challenging times, it will be the companies that know how to navigate changing market dynamics that will remain resilient during the downturns. Always remember when to pull the trigger and when to hold back – those who are conservative and strategic now will benefit later.