Corporate Finance Outlook: High Interest Rates, Fluctuating Demand, and Labor Pains
Mark Weinsten
It is a troubling sign that the number of corporate bankruptcies in the United States is trending significantly higher than in 2022. High interest rates, debt coming due, and lagging consumer demand aren’t helping. To stay competitive in 2024, companies—and their lenders and investors—would do well to learn the right lessons from the pandemic and find innovative ways to adapt to today’s uncertain economic climate.
Case in point: corporations of all stripes are having a hard time projecting demand. That has a lot to do with COVID: some businesses were hit hard while others, like outdoor retailers, saw major spikes—and everyone had to deal with significant supply chain disruptions. Many management teams mistakenly saw these shifts as permanent. Some, for instance, over-forecasted and have had to make painful cancellations to new supplier contracts. Others played it too safe. Fluctuating demand due to high interest rates and mounting consumer and student debt—plus evolving supply chain issues stemming from geopolitical tensions (e.g., with China)—only exacerbate the problem.
Creating accurate projections requires looking at your business holistically, from the bottom up and top down: examining, at a granular level, each product, division, supplier, and geography, as well as broader macroeconomic factors. Executives need to be honest about where they stand (e.g., “Are we really going to get this many new customers?”) and understand what investments they’ll need to make to hit their targets. They should look at historical data but not be wed to it, all while maintaining flexible supply chains.
“To stay competitive in 2024, companies—and their lenders and investors—would do well to learn the right lessons from the pandemic and find innovative ways to adapt to today’s uncertain economic climate.”
Expense structures should be reevaluated in tandem with new demand projections. The good news is that some costs, like trucking, have moderated, and supply chains have, broadly speaking, smoothed out. That said, certain material costs are only rising, and companies need to assess how much of that they can pass on to their customers—and how to take more expenses out of the business should they not be able to.
Finally, today’s labor market is tight and fast evolving. For instance, contrary to what many thought in the wake of the pandemic, too much remote work may not be productive. Organizations will need to strike the right balance—flexible scheduling may help—and also address costs associated with retaining and recruiting new talent (e.g., is it cheaper to give people a raise versus hire new ones and retain them in today’s market?). Artificial intelligence (AI) tools and predictive analytics also can play a role, be it by anticipating stockouts, building iterative demand models, engaging with vendors/suppliers, or estimating foot traffic to stores, among other applications.
Mark Weinsten is a managing director in BRG Corporate Finance based in Boston. He has more than twenty-five years of experience providing a comprehensive array of services to boards of directors, equity sponsors, debt holders, and management of distressed, underperforming, and transitioning companies.
Email: mweinsten@thinkbrg.com
Phone: 617.673.2161