Finance Forward: Lessons From 2020 And The Year Ahead By Andrew Hollingsworth, Senior Vice President, Gerber Finance
The year 2020 will go down in history as one of the most challenging for people and businesses. While some companies thrived during the pandemic, others stumbled as supply chains were disrupted, shopping moved online, and consumer spending pivoted. The changes that 2020 brought reshaped the business world temporarily and changed many industries permanently – arguably for the better. The companies that will thrive in 2021 will have not only adapted to the post-COVID consumer, but they will also be stronger and more resilient in the future.
There were some apparent winners in 2020 – those whose business DNA was built on an e-commerce platform, such as Amazon, and the home office darlings like ZOOM and food delivery services – that all saw a banner year. But there were some other industries, beyond the vaccine producers, who had the right product at the right time. In the CPG space, plant-based food companies boomed as consumers sought to power their health. Video game makers and at-home entertainment services accelerated as the travel and restaurant industries struggled. While many companies pivoted or rode the wave of opportune timing, others scrambled to stay afloat during the tidal wave of debt.
The financial challenge for businesses
The challenge for many companies was a financial diet built on a decade of access to easy capital backed by low-interest rates. The companies with positive balance sheets and a higher likelihood of repaying debt scrambled to get funding at the coronavirus’s onset. Others used an injection of funds from PPP loans to stay afloat. We saw a boom in companies using their assets to secure loans, allowing them access to cash without diluting ownership.
When we look at 2021, we not only see trends, but we also see lasting changes that the nimblest of companies will integrate into their strategic planning, and scale accordingly. Before signing that long-term lease on colossal office space or doling out pre-pandemic travel budgets, it is critical to look at the changes that impacted business and how companies can best adapt and plan to maximize the moment. As the year ahead remains uncertain, smart companies will continue to do scenario analysis and prepare for a variety of future outcomes.
The changes in the way we work
As the business world shuttered, a new work-from-home world was created. And one thing is clear in 2021: workers will never go back to work-in-office at pre-COVID levels. The Federal Reserve Bank of Atlanta estimates that the share of working days spent at home by full-time workers is likely to triple after the pandemic, relative to pre-pandemic levels. According to Gartner, nearly a quarter of CFOs said they would move at least 20% of their on-site employees to permanent remote positions.
This new normal will create significant long-term changes that will affect companies’ budgets – from office space needs (reduction) to technology needs (increase). As businesses transcend isolation from one another, their partners and clients, the need for technology from laptops to high-speed internet, and to invest in the latest upgrades and tools to power their workforces becomes vital. Agile companies plan for a long-term evolution of a significant part of their workforce working from home and significantly less investment in travel costs and more in state-of-the-art teleconferencing. The speed of technology adapting to a post-pandemic life will enable companies to compete in the new landscape effectively.
The future is looking brighter
In terms of consumer spending, with a vaccine on the horizon, businesses embrace a future that will be a “new normal” – one that the most agile of companies will anticipate and prepare their business and financing accordingly. Without a business shutdown, consumer demand overall can be expected to return in 2021. According to the Dept of Commerce GDP Data from October 2020, GDP growth is expected to be -3.5% for 2020, but +4.4% for 2021. Companies that make necessities, wellness products, and other goods that may be in demand need to look at long-term trends and neutralize the 2020 surge in forecasting velocity. Many estimate that pent up demand will unleash a wave of spending, particularly on travel and restaurants.
As financiers, we look to partner with companies that reflect the changing times and evolving demands of consumers. Today’s consumers are more focused on health and wellness, seeking products that protect and nurture them and provide immunity functionalities. The pandemic cast a beacon of light on hygiene and the need for sanitary work, home, office, and travel spaces. The consumer wants their brands to represent their values and be part of the solution to macro societal trends. They wish to support companies that care about their environmental footprint and provide tangible ways they are doing their part to improve their impact on the planet.
Financing in 2021
When it comes to financing, 2021 will continue to evolve and play out in different ways for different companies. Regardless of the various scenarios – from companies trying to meet accelerated consumer demand to businesses struggling to adapt and stay afloat – CFOs should have direct conversations with lenders about their 2021 prospects. While sometimes difficult, ignoring these conversations will not make financial challenges go away. With all the upheaval in 2020, it is important to make sure financing sources are committed and secure for the year ahead. To access funds, smart companies will look beyond the typical loans from banks, which are often arduous to gain and limited in size and flexibility, or from investors who offer enticing capital in return for a large piece of the company. Alternate sources such as asset-based lending, which allow companies to gain a true business partner with in-depth knowledge of their business and access to funds without relinquishing any ownership, are increasingly the solution for growing companies.
The future is promising. We have learned a lot from COVID – as a society, as individuals, and as businesses. We may never return to pre-pandemic life, and for companies, that may not be a bad idea.
To learn more about asset-based lending, listen to our recent podcast, “Everything to Know About Asset-Based Lending.”