The # 1 obstacle for businesses in 2022 and 5 ways to overcome it!
Entrepreneurs will face as many opportunities as obstacles in 2022. The greatest opportunities will hopefully be the unhindered reopening of the global economy and the resulting increased demand for businesses. There will also be unicorn opportunities for entrepreneurs seeking growth in emerging industries.
As for the obstacles, the most important is probably inflation. In addition to macroeconomic issues, such as the practice of increasing the money supply at the slightest sign of economic malaise (especially for the stock market), here are a few other reasons:
Relocation of production out of China due to geopolitical risks and increased costs
Baby boomers demand more health care as they get older
Millennials increase their consumption as their family grows
And the 600-pound gorilla – the increase in the national debt to about $ 29 trillion now.
Consider the impact of this debt – a 1% increase in the federal interest rate will increase annual interest payments by about $ 290 billion – and further increase its annual federal deficit. current level of about $ 2.8 trillion. Adding this amount to the federal deficit, since neither party seems interested in reducing the deficit, will only lead to a spiral of additional borrowing.
While our economists assure us that is not a problem, it does mean that the federal government will be a competitor for the limited funds available, which could especially hurt entrepreneurial businesses. More savings could be spent on bonds, possibly reducing the demand for higher risk equity capital, which could mean the end of the cornucopia for IPOs and PSPCs, more selectivity in funding businesses and higher financing costs for businesses and small businesses.
So how can entrepreneurs fight back? Here are 5 suggestions:
1. Start with the basics
Â· Continue to reduce waste: The pandemic has imposed financial discipline on many companies. Now would be a good time to find more ways to do more with less. Glen Taylor built a multi-billion dollar business. He started out in a printing house and showed how to reduce waste. In three years, he has gone from the bottom of the company to the top.
Add value for higher margins: When Steve Jobs returned to Apple, the company he co-founded, he was on life support. He cut down on waste and unnecessary products first. And then he focused his attention on building one of the world’s largest arsenals of high margin products and platforms.
2. Seek more low cost financing and reduce financing costs
Â· Public finance can be an excellent source of cheap finance for businesses. Even the great Sam Walton received government funding. You can also.
Crowds and Angel Investors vs. VC: For those with insufficient equity from savings, family or friends, mobs and angel investors can represent a lower cost of equity as long as you know how to get it and avoid sharks. Get it when you qualify and don’t wait until the last minute when you’re desperate. Investors often sense desperation and avoid it – or exploit it.
3. Increase internal funding
Â· Get ââpaid before you pay. Companies like Dell and Wayfair have built unicorns by getting paid before they have to pay. It sounds simple. It’s not. You may need to change your business model.
Â· Improve cash flow. Bob Kierlin made Fastenal one of the country’s great companies by growing with its cash flow. With this brilliant and intelligent business model in finance, he made Fastenal a multi-billion dollar company starting at $ 31,000 and with no further funding until its IPO. That’s right – no additional debt or equity.
4. Use smart, driver-centric sales
Â· One of the biggest problems in new businesses is getting sales and spending too much to get it. Joe Martin learned to sell online and sell more for less – and made Boxycharm.com a unicorn cosmetics company – starting at $ 375.
5. Make your strategy financially smart
Â· Many entrepreneurs choose a business strategy and then seek financing based on that strategy. Unicorn entrepreneurs assess the financial impact of their business strategy – and adjust if necessary. This could mean selling directly to consumers, selling more value at high margins, and growing with emerging trends rather than fighting them. A good example – Tesla’s Elon Musk.
MY OPINION: As the cost of money rises, and it is likely it will with the higher rate of inflation and increased demand from the federal government, funds will go to high-risk, high-risk businesses. potential and business opportunities to low risk companies and financial instruments. Plan for the new reality.