How small businesses can go from surviving to thriving in high inflation

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Bob Marshall, Wells Fargo Small Business Growth & Strategy:

Small businesses are experiencing what I would describe as a pandemic hangover.

Rob Myers, Wells Fargo Small Business Relationship Banking:

Yeah, I would agree with Bob.

Marshall:

They continue to have cash flow compression due to supply chain issues and talent. How do I find and retain the right talent and can I pay market place rates for the roles that are most necessary?

The other thing I would say is there’s a real concern around accounts receivables increasing because people are not paying based on terms or taking discounts. They’re sort of extending out as long as they can go.

Third thing I would say really is about, you know, the resiliency that they experienced in the pandemic. How do they use that momentum to kind of drive them forward?

Myers:

Bob, as you spoke about COVID and the post-COVID environment, we saw a lot of businesses more flush with cash, due to Paycheck Protection Program and other forms of stimulus.

Today, we’re starting to see that cash being used, and we’re also experiencing inflationary period where cost of goods in many instances are going up. That impacts a number of different industries, whether it be those dependent on gas, food, labor.

As Bob noted, we certainly see a competitive labor market. We’ve heard from businesses through surveys and other means that acquisition of talent still remains a challenge in this labor force.

Marshall:

And the fact of the matter is that the rise of inflation isn’t sort of just a 2022 reality. We saw it rise more in 2021 than it did all of 2020.

Myers:

And it’s accelerating even more in ’22.

Marshall:

The other thing, too, is fraudulent behavior.

Myers:

No question about it, we’re seeing it manifest in a number of ways. Customer impersonations — a fraudster will get a hold of customer’s information and take the part of the customer and create fraud.

We’re seeing it through transfers of funds, and we are being diligent with our bankers and ensuring they’re having the right conversations with customers to ensure that there’s awareness from our customers on what could happen, and also awareness of means and ways that our customers can ensure they’re mitigating the fraud risk.

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Bob Marshall, Wells Fargo Small Business Growth & Strategy:

Rising interest rates and inflation has really taken a toll on some small businesses. But it’s really a tale of two cities. Some small businesses, particularly health care practitioners who see some consistency in their cash flow, in their business, the patients still coming in. And they also are being forced to grow.

Rob Myers, Wells Fargo Small Business Relationship Banking:

I think it’s important to note that transactions are still happening. Customers are still buying real estate, making capital expenditures. We’re seeing it with equipment. We’re seeing with vehicles. So by no means is inflation causing a complete pause in those things.

Marshall:

And on the other side, you have folks who are really trying to figure out what that path forward is, what the new normal is.

The other thing I would add is really around how it impacts them personally. Small business owners also have to get paid, and they’re starting to experience not bringing home as much money as they thought they would from their small business.

Myers:

What it is causing is our business owners to be thoughtful about the rates, the expenses, to ensure that they are spending prudently and understanding the return from the investments they’re making.

In the case of real estate, it’s maybe the cost of buying versus renting for capital expenditures, it’s ensuring that it’s going to create productivity such that it’s a worthwhile long-term investment.

I continue to see a couple of things with the relationship management team. Number one is questions about renting ownership. There’s uncertainty in the industry market and there’s discussions happening between banker and customer to say when is the right time to refinance?  Do I have a prepayment penalty on my existing loan? What are the tradeoffs in refinancing now versus when the loan matures?

From an entity operating relationship, we see more questions about lines of credit. How do I make sure I’m prepared for potentially a slowdown? How do I make sure that I’m taking advantage of opportunities that may exist with my vendors, like trade discounts?  How do I ensure that I have stability going forward?

And so we’re seeing a lot of discussions with our bankers and their customers around how to utilize lines of credit, talking about maximizing dollars, tradeoffs, security. Those are all things that regardless of macroeconomic environment, are great conversations to have between a banker and customer.

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Rob Myers, Wells Fargo Small Business Relationship Banking:

In this environment, there’s a number of things a small business can do. It starts with a business plan. It’s a changing, evolving, living, and breathing document.

I think back in the COVID days and as Bob knows, everything seems to revolve around food for me. So I’ll use, I’ll use a restaurant example. Customer behavior changed during COVID. People weren’t going out. And so a restaurant that was accustomed to an inflow of, of dine-in customers had to shift to takeout, to delivery to ensure success.

Bob Marshall, Wells Fargo Small Business Growth & Strategy:

Make sure you know your path forward, and know who your customer is. The path forward is critical because as small businesses have experienced during the pandemic, things as Rob described, change rapidly. And knowing your customer and how your customer behaves is really critical, because we all know things have changed. People are embracing technology.

Myers:

That’s exactly right. And to that point, I think that really leads to understanding the foundation of the business — the expenditures, the competitive advantage, what does cash flow look like, what are the levers that can be pulled?

Marshall:

And, Rob, to your point earlier. I would be remiss if we didn’t mention, again, the importance of being vigilant around fraudsters. Small business owners have a lot to do and probably not as attentive to some of the things that could trip them up and give fraudsters an opportunity.

Connect with your banker. The bankers have a portfolio of customers that can really help them.  Not only think about their business plan or their path forward, and not only help them create ways in which to mitigate the opportunity for fraudsters, but also to help answer your questions, to give guidance, to serve as another set of eyes.

Myers:

And I think beyond that, having a network of experts that support businesses, attorneys, CPAs are critical as well. And with us being bankers, we would certainly advocate for our customers to ensure that they’re building a strong relationship with our bankers. And there’s a lot that we can provide in terms of service and certainly product, if that’s where, if that’s what’s needed.

Marshall:

To be able to navigate an organization like ours, one single contact so that that banker can help them go back to do what they do best: be a small business owner.

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