Growing When the Growing Gets Tough: A Lesson on What Not to Do
March 1, 2023
Congratulations on making it through a tumultuous 2022. That in itself is worthy of celebration, because we can now fully understand and appreciate what a uniquely challenging year it was. Traditionally, a new year brings hope for a fresh start and new opportunities, but the rollover from one year to another isn’t like pressing a magical reset button. And, looking at the state of the economy, old questions continue to linger like tethers to 2022.
- What’s going to happen with interest rates?
- Will inflation continue to rise?
- Will markets rebound?
- How will global conflict continue to affect the economy?
- Are we still headed toward a recession?
These unknowns can paralyze business leaders into placing critical growth decisions on the backburner in favor of playing a game of “wait and see.” But there's a substantial opportunity cost associated with sitting on the sidelines as the world continues to turn, and as competitors who may be less risk-averse capitalize on your inaction.
You've surely heard the phrase, "All good things come to those who wait," right? Well, whoever said that probably didn't own a business, and if they did, they didn't own it for long. Because the business world is filled with plenty of sharks who understand what it means to stop swimming, and who are ready to eat you for lunch if you choose to do so.
While recession fears often lead many worried business owners to stockpile their acorns, businesses (especially newer ones) cannot afford to do so. Failure to reinvest in a business is one of the leading reasons 20% of new companies shutter within two years of opening, and why just 65% of new businesses make it past the five-year mark. Even established businesses well past those milestones can't play it safe.
If you wait for perfect market conditions to begin focusing on business growth, you’ll continually be a step behind and you’ll likely never achieve your goals, because there will always be something. Likewise, if you wait for the right rate to purchase the equipment you need to take your business to the next level, there’s a chance you could find yourself waiting quite awhile. When it comes to interest rates, a fraction of a percent probably won't break your business, but stagnation very well could.
While rates aren’t expected to rise quite as substantially as they did in 2022, the Federal Reserve will likely continue to combat inflation through rate hikes which impact all markets, with many experts expecting inflation and slow economic growth to persist through 2023. That means rate cuts likely won't come anytime this year. Though rates may not be as low as they were just a few years ago, if you need equipment, now is as good a time as any to be looking.
Interest rates aren’t the only variable to consider when you’re looking to grow your business by purchasing or leasing the equipment you need to do so – there’s also a matter of inventory.
Much like the automotive market, where inventories remain low and popular vehicles can sell well above their sticker price, the heavy equipment market has faced similar supply chain challenges. Like interest rates, it’s something that could extend well into 2024, so for businesses that critically need new equipment to facilitate their growth, finding the right piece at a fair price today could still make financial sense long term.
As mentioned, reinvesting in your business is critical, and upgrading the equipment you rely on is one of the most important reinvestment decisions you can make, particularly if you're spending money repairing or maintaining aging assets. With advancements in efficiency and technology, it could be far more profitable to replace your equipment now. You may even qualify for a tax deduction through Section 179 of the tax code your first year of ownership and operation.
Navigating such decisions doesn't have to happen in a vacuum, even if you're an entrepreneur or the sole proprietor of your business. There are plenty of business consulting firms that specialize in equipment acquisition and can walk you through options you might not even realize exist, taking into account your specific needs and finances. Many will also often already be familiar with your industry and the unique challenges you're facing, with tailored advice on how to overcome them.
Whatever you do, just don't rest on your laurels in 2023 – there's a long year ahead of us, and opportunity might not wait for you to make your move.