For many businesses, 2023 turned out to be the year of “wait and see.” Ongoing economic uncertainty around the interest rate environment and possibility of an impending recession, compounded with concerns about geopolitical tensions and the upcoming election year in the U.S., left many businesses in pause mode in terms of taking action on strategic priorities, unsure of what their next moves should be and when they should make them.
While waiting for clarity around what might be on the horizon, many companies have been focusing on managing revenues and efficiency, making sure their credit profile is in order, and other aspects of their strategy they’re able to control. This is a sound approach to running a business responsibly, but it may present obstacles to growth, according to Terry Begley, head of Corporate Banking at PNC Bank.“ Companies may find if they wait too long for clear answers, they may miss out on some opportunities going into 2024,” said Begley. “For businesses that have growth aspirations, it may be time to think about breaking out of a holding pattern so that they’re ready when green shoots appear.”
Achieving this may require developing a certain comfort level operating with some level of ongoing uncertainty. “There’s no way to know exactly what the economy is going to look like as we move into 2024. Instead of waiting to see how things play out, businesses should think about committing to their long-term business plan and goals, whether that’s an acquisition or achieving growth through other means.” Begley said. “They can put strategies around economic and rate environment assumptions that can be changed over time, which can help them hedge some of the near-term challenges while still working to achieve their long-term strategy.”
For businesses interested in pursuing acquisitions, taking action while still operating in the current environment may mean exploring updated valuations and examining capital structure and financing capacity which may be different than in the recent past. Also, many companies are currently financed with short-term maturities at low rates, but each year brings them closer to maturity dates on the debt, bringing refinancing considerations to the forefront. Implementing hedging strategies to manage interest rate risk continues to be important as the direction interest rates will take in the coming months and years remains uncertain.
For these and other challenges, solid banking relationships can provide important guidance. “At PNC, we don’t have a crystal ball to know how the exact economic environment is going to look throughout 2024 or beyond,” Begley said. “However, we can work closely with businesses to advise and develop strategies for setting themselves up for success, both now and when the economic outlook eventually improves.”
Begley noted that not every pressing business need is rooted in the current macroeconomic uncertainty. “There are some issues businesses are thinking about that don’t necessarily correlate directly with current economic pressures, with business succession planning as a prominent example. There are a lot of business owners right now who are looking to exit their companies, and they may have very particular objectives in mind, including timing, strategies for transferring ownership, tax and estate planning, and so on,” Begley said. “They want to move forward on this regardless of what is going on in the economy. PNC has strong capabilities and resources in place to guide them through those decisions and other business needs.”
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