Challenges that medium-sized businesses in the United States faced in 2023 are likely to continue into 2024, as high interest rates and elevated inflation remain in the economic forecast for the new year. The ongoing uncertainty has led many businesses to hit the ‘pause button’ in terms of taking proactive steps toward achieving business strategies. But according to Stephanie Novosel, head of Commercial Banking at PNC, staying nimble is essential to thriving in challenging conditions.

“It’s understandable that a lack of certainty about the future can be unsettling for business owners and management teams, especially given the amount of volatility that we have seen in the current economic climate,” Novosel said. “But it’s important to not allow long-term uncertainty to get in the way of executing on short-term strategies that can help keep things on track until conditions are more favorable.”

Achieving Efficiency as a Path to Profitability

Realizing efficiencies is an increasingly important priority for mid-sized businesses looking to manage costs. It’s a focus that consistently remains top of mind, but it takes on added importance when factoring in the possibility of a recession in 2024, and a resulting potential pullback in demand for products and services.

Implementing digital treasury solutions can be an important step toward optimization, as these solutions can eliminate costly manual processes and provide greater visibility into managing costs. According to a recent PNC Bank survey, 70% of treasury or finance departments have five or fewer team members, and many have limited experience in areas like hedging, cash management and cash forecasting, which can be important treasury tools to deploy in challenging economic conditions. Additionally, investing in digital transformation tools, including embedded finance solutions, can help streamline and automate processes.

Technology may offer a path forward in other ways as well. The growing use of artificial intelligence (AI) may present possibilities for businesses looking to automate operational processes. According to a PNC survey of small and medium-sized businesses, among those that consider AI useful, more than four in 10 (44%) are already using AI applications, while 45% are evaluating or planning to implement applications in the next year or two.[1] However, any investment a company is willing to make in AI may depend on the degree to which the outlay is likely to generate revenue in the near-term, given the challenging economic climate. 

Proactively Protecting Against Payments Fraud

Digital treasury tools can also play a role in protecting against payments fraud, a concerning trend that is likely to continue into 2024. Payment fraud is one of the biggest challenges businesses of all sizes face today, as cybercriminals are developing increasingly sophisticated schemes to infiltrate access to data.

Leveraging digital payment solutions, including immediate payments and payee account verification services, can help companies manage risk, in part by reducing reliance on check payments and verifying that payments reach the appropriate party. 

Finding Solutions to Labor Challenges

Labor force considerations are likely to continue to impact medium-sized businesses, as the low unemployment rate that characterized much of 2023, may continue into 2024. Inflationary pressures are also playing a role, as businesses look for ways to offer compensation that keeps pace with overall rising costs. A PNC survey indicated that one in three business owners (33%) expect to increase employee compensation, and employers are taking a variety of measures to attract and retain employees: 35% have standardized flexible work options, 27% have changed benefit packages, and 23% have standardized their hiring, promotion, or compensation practices.[1]

The potential for a recession in 2024 is adding complexity to the picture, as businesses may have to evaluate if they are in a position to bring on additional employees and what efficiencies they may need to achieve to make this possible.

Managing Liquidity

Optimizing liquidity and working capital will be another critical area of focus for businesses in 2024, as the ongoing high-rate environment drives borrowing costs higher. As medium-sized companies explore their capital options, it’s imperative that they keep their long-term strategic goals top of mind. Investing in equipment or facilities that may help with speed to market or exploring nonconventional financing options, including Small Business Association (SBA) loans, may offer solutions to capital needs.

The challenging economic climate will add importance to effectively managing available working capital. This is an area where interconnected digital treasury solutions, such as integrated receivables, invoice automation, integrated payables, and card programs can help accelerate payment collection and extend payment cycles.

Remaining Agile with a Long-term View

Taking short-term actions to achieve stability in the long term is the name of the game in the current environment, according to Novosel. “It’s important to remember that any time there is a pullback in the economy, that means there will be chances for businesses to capitalize, whether through gaining market share or taking advantage of merger and acquisition opportunities. Business should focus on controlling what they can amid the uncertainty but not lose sight of what’s on the horizon.”

Ready to Help

PNC Commercial Banking can offer insight into technologies, products, and processes that can help businesses seize opportunities, today and in the future. For more information, reach out to your PNC Relationship Manager, or contact us.