This article was last updated on February 10, 2022.

As we head into the post-pandemic era with so many challenges to the normal supply and demand balance, there are several things that business owners and financial directors should evaluate as they make decisions for the health and future of their businesses.

Recently our team of business advisors sat down to share their experiences working with business owners in 2020 and 2021 and to debate some of the possibilities for the future. Listen in as we share the best excerpts from that conversation.

• As business advisors, which industries do you work with the most? We work mainly with construction companies, outdoor power equipment, and manufacturing shops like metalworking, cabinets, and other woodworking shops.
• Which industries have grown the most since the pandemic? Construction, hands-down, which seems odd because prices are through the roof. Anything related to what people would do more of at home is what went crazy: things like home renovations, decks, fencing, along with storage sheds, outdoor power equipment, and outdoor furniture.

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• Have your advising clients struggled to be successful during the Covid restrictions? I had one business that Covid took out, but he was in a very niche market. For the most part, sales were up. We found that if they struggled in 2020, it had nothing to do with Covid.
• What has been a key to success in the last couple of years? Staying on top of costs. Going from 700K to 1M in sales sounds good, but more sales volume only makes you do more of what you’re already doing. So, if you’re barely scraping by, you’re just going to barely scrape by… a bunch. Volume doesn’t make you profitable, margins do.

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• How would you describe the current business environment? People are willing to wait, they are willing to spend more, and they’re not out of money. Wait times can be anywhere between 3-6 months, sometimes even longer, but customers know this and they are fine with it.
• What can business owners do now to be profitable in the current economy? Now is the time to get your prices correct. You can be fairly liberal with your pricing now because everyone expects it. But if you wait until things slow down again, you’re going to be in trouble.
• Business seems to be very good now. Is there anything a business should do to prepare for a potential downturn? Now is the best time to build cash reserves. Set aside a couple of months of operating overhead so that even if your sales numbers fall all the way down to zero, you can still pay your bills for at least two months. If you have accurately priced goods and services, you should have a bit of margin to set some cash set aside.

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• What about inventory in the current economy? If your inventory prices are volatile, you’re going to have to manage them so you don’t overextend on the downside.
• The artificial recession caused by the pandemic is fresh on everyone's mind. Is there a way to be “recession-proof”? The best business practice is to build margin into everything. Business owners need to know how far past breakeven point their company is operating. If they’re operating at 30% past breakeven, they could lose 30% of sales and still pay the bills. A 30% downturn is about what we saw in the 2008-2009 recession.
• Is now the time to expand? That’s the million-dollar question. When thinking about paying for an expansion, how much profit margin do you have if business suddenly tanks? Would you be so maxed out with payments that you could get into trouble? Also, determine how soon you would experience a return on your investment.
• Do you have any advice for hiring in this competitive market? Just be careful. Pay what you need to, but guard that. Try to find the right fit. The tendency in this environment is to hire the next warm body rather than looking for the right fit, and that typically comes back to bite people.
• Businesses are paying top dollar to hire new employees. What happens if the economy tanks and they can’t afford it any more? We like the approach of using incentive pay to keep base pay lower. If the economy slows up and you’re locked into high wages, people don’t like to take a pay cut. But if extra compensation is tied in with the profitability of the company, the employees know that and it’s much easier.

There you have it! It was a valuable conversation, and as these gray-haired businessmen and advisors shared their thoughts, we knew that more business owners needed to hear what they shared. Here is their best advice in a nutshell:

1. Prices and profit margin are important. They will help you to build cash reserves to prepare for when things are not so good.
2. Be careful when hiring new workers. Don’t just hire the next warm body, but be committed to finding good fits.
3. More work does not always mean more profit. But, when your margins are good, your business will be more sustainable long term.