What are your plans for 2022? It’s estimated that COVID-19 impacted 95% of businesses, and 80% of business owners saw an impact on their personal finances. These impacts have been diverse, and the financial challenges continue. This article uses two surveys to provide a backdrop for the economic roller coaster ride business owners face and four key planning areas to consider in preparing for the new year.

U.S. economic performance has been likened to a burning match. When a match is first struck, the flame burns hot and bright, but it eventually settles into a steady state. The economy surged the first half of this year as businesses and individuals hit restart following an unprecedented stimulus, the rollout of vaccines and pent-up demand. Headwinds emerged — supply challenges, inflation, scarce talent, the Delta variant, return to the workplace complications, etc. — and the economy settled, facing new realities.

Two interesting surveys set the stage. One describes the impacts of shutdowns and lockdowns on businesses and what many owners did in response. The second describes conditions and outlooks from business owners today.

The effects of COVID-19 on small businesses

The Small Business Credit Survey (SBCS), a collaboration with the Federal Reserve Banks, is an annual survey of firms of fewer than 500 employees. These types of firms represent 99% of businesses in the U.S. The survey was fielded in the fall of 2020, and special reports documented the toll COVID-19 had on small businesses. Here are some key findings:

  • 95% of small businesses reported that the pandemic impacted their business. This included reduced operations (56%), modified operations (48%) and temporary business closure (26%). Common responses to these impacts included using personal funds (62%) or cutting staff hours/downsizing (55%). 
  • 91% applied for emergency funding (i.e., Paycheck Protection Program).
  • 81% of small businesses saw lower sales, and 53% expected to see a 25% decline in sales throughout the year. 
  • 20% of supply chains struggled with a significant reduction in availability, 43% saw a moderate decline and 20% saw little or no effect.
  • 80% of businesses reported an impact on their personal finances.
  • 63% either reduced their personal income to account for financial imbalances in their business or did not draw from their salaries. 
  • 51% paid for business expenses with personal funds. 
  • 21% borrowed money from family or friends. 
  • 16% took from their retirement savings.
  • 14% worked a second job.

COVID-19 and CEOs’ decreased confidence

Vistage Worldwide, a CEO coaching and peer advisory organization, reported a decline in their third-quarter 2021 CEO Confidence Index. The survey reflects the views of 1,600 CEO respondents. Their confidence peaked in the second quarter at 108.8 and dropped to 97.1 in Q3, reflecting the financial headwinds mentioned above and expectations for economic growth.

  • 56% of CEOs in this study believe the economy has improved compared to a year ago, and 68% anticipate increased sales revenue in the next 12 months. It’s important to remember rising costs may weaken profits.
  • Nearly half of the CEOs plan to increase fixed investments in 2022, and the desire to increase headcount remains strong, with two-thirds planning to hire more workers.
  • Staffing has proven to be challenging, thus forcing businesses to use various incentives. 69% boosted pay; 28% expanded benefits; 27% offered hiring bonuses; 41% included remote working as a benefit; 56% incentivized skill and leadership development.
  • 65% of CEOs said they plan to invest in automation to reduce labor costs and increase productivity.

CEOs also face new complications regarding plans for returning to the workplace and reviewing decisions on mask and vaccine mandates. These difficult decisions do not come with guidelines or best practices, and they must each balance personal beliefs, leadership demands and business realities.

Personal financial planning for small business owners

New lessons and shifting conditions require focused personal financial planning for small business owners. Here are some tips:

Restore emergency reserves and retirement accounts. They’re called “rainy day funds” for a reason. The SBCS survey highlights the need to be able to weather storms — economic, personal or otherwise. As for those who tapped their retirement accounts as a backstop, it’s time to get back on track with your retirement savings.

Pay attention to the bottom line. Much is said about top-line revenue growth. However, consider insights from the Vistage study regarding rising costs. Explore expense reduction — streamlining, refinancing expensive debt, improving productivity, and tax reduction, to name a few.

Take prudent risks. How has life changed for you since COVID-19? If you continue to do things the “way they’ve always been done,” where will you end up? Perhaps it’s time to try something new: Be open-minded, test the market, adapt and maintain a strong team.

Revisit your long-term plan and model it for multiple scenarios. You and your business survived the pandemic, which required short-term focus. What about using 2022 to recharge and refresh your long-term plans, both business and personal? Two challenges with planning and forecasting are the “fear of getting it wrong” and the uncertainties of the future. Therefore, model it for different scenarios, encourage input from your team and seek objectivity and feedback from your professional team of advisers if beneficial.

May this sage advice help you secure your small business’s future wisely.

Brian Loy, CFA, CFP, is president of Reno-based Sage Financial Advisors Inc. Contact him at www.sagefinancialadvisors.com.