Straight up, I do not know what to expect with the economy.
Am I making the right decisions in my business based on these unknowns?
Culturally, western countries are undergoing a massive transformation. This includes the emergence of a new organization in the world economy. In other words, how you do business today is changing. The tension in the political realm is one indicator of this.
The Economist Magazine highlights key indicators of fundamental changes in their October 8, 2022 article, “What’s Next?” This is the run-down rapid-fire:
Global inflation is in double digits for the first time in 40 years. The Federal Reserve is cranking up interest rates at the fastest pace since the 1980s, the US dollar strength reached a two-decade peak causing imports to be more expensive (this contributes to inflation), and public company shares prices dropped 25% — this is the worst since the 1980s.
In response, the public spending is out of control: many central banks are broke, Government bonds performance is down to 1949 levels, and trade is changing to allies due to the Russia War, all while supply chains are moving local and/or building in duplication at a cost due to the pandemic. Europe and Japan will spend more on defense (it’s about time they do their share), and OPEC is cranking up pricing/supply pressure while we scratch our heads about energy independence.
I remember energy independence being a huge topic in the 1970s, but here we are.
The current financial order and way of doing business were established after World War II by the Bretton Woods Agreement. At that time, it was a major transformation similar to what we are going through today. Bretton Woods established the global commercial and financial world that we know now. Highlights include currencies tied to the US dollar. The dollar was convertible into actual gold. The agreement established the International Monetary Fund to prevent currency devaluations. The Soviet Union participated in the agreement drafting but declined to sign it. The Cold War started soon thereafter. Later the push for Globalization started.
Assuming that today’s way of doing business will last forever is a mistake.
Still rapid-fire, the key changes in the way of doing business include:
- Changes in consumers’ values that will drive different buying behavior and commitment to work
- Target annual inflation rates increasing from 2% to 4%, banks having less money to lend due to bigger reserve buffers
- Digital currency bypassing central bank control
- More local supply chains with a different approach to Globalization
- Blockchain technology is restructuring the insurance industry and becoming the basis for contracts
- Doing business with allies instead of making our enemies stronger
- Human creativity continues to solve the scarcity challenge
- Artificial intelligence, robotics, and the metaverse are taking virtually to a whole new level
- Infrastructure and energy independence investments
- The acceleration of business transfers as founding owners step back
Only one out of four businesses is transferable to the generation.
Uncertainty will cause extended sales cycles, more owners are looking to step back sooner, labor scarcity will drive wage inflation and the inability to scale, and the workforce will become increasingly distributed.
Take Action Now
The new financial order and way of doing business is an opportunity for the right CEOs. This is the time to use foresight to see what is seeable.
What are your Bold Moves over the next three years? According to McKinsey & Co., your business will be 30x more profitable and 6x more valuable if you make three or more bold moves. The research is in their book “Strategy Beyond the Hockey Stick.”
Growth CFOs protect CEOs from the downside when making bold moves.
Build a three to five-year Financial Flight Plan. Run scenarios for your bold moves. Ensure that you include likely and worst-case scenarios, including a deep recession. The flight plan reveals the best path to stay cash positive, increase topline revenue and the bottom line profit, and maximize the value of your business so that you get paid twice.
Build a Cash Reserve. Be ready to take on additional business organically and through acquisition. Be ready to attract A-player talent by becoming the employer of choice. Have the financial fortitude to scale during a recession.
Need Help or want to talk? Let’s set up a time to meet.
At Foresight CFO, our Growth CFOs do Destination and Follow Through work with CEO business owners globally. We deploy Growth CFOs in 3-person teams to go well beyond what any One CFO could ever do. Schedule a 25-minute Discovery Consultation with me