A growing market like Phoenix can present both a wide range of financial opportunities as well as challenges for business owners. Arizona holds more than 150 of the nation’s fastest-growing companies, according to the Inc. 5000 lineup, a list ranking business revenue growth over a three-year period, from 2018 to 2021. The listed businesses, mostly located in the Phoenix area, have added more than 12,000 jobs the past three years, driving $18.5 billion in revenue, according to Inc.
A high-growth market can open doors to increased revenue, acquisitions and other financial investments. But current economic obstacles like inflation and supply chain disruption can pose a threat to newly acquired assets. Understanding current trends can help business owners manage their finances safely and effectively in the current climate, while taking advantage of the growth happening within the region.
Examine the Supply Chain
Phoenix is home to an expansive and diverse population of manufacturers, some of the largest sectors producing microchip technology and aerospace technology. The manufacturing industry impacts businesses across all sectors. Every dollar in manufacturing sales supports $1.34 in output from other sectors — the largest multiplier of any sector, according to The Manufacturing Institute. Global economic uncertainty and supply chain disruptions are prompting owners to reexamine their supply chain management.
Expanding and diversifying one’s supplier base can potentially lead to new partnerships that could increase one’s buying power. Businesses should consider exploring suppliers that are in close proximity to their business. Working with a local manufacturer can reduce transit time and costs, providing an affordable solution that not only helps the business’s finances but supports its local economy, too.
As demand rises, so does the potential for running out of stock. Adjusting one’s inventory management is a great way to make sure one’s business is keeping pace with the growing market. If the budget allows, investing in additional inventory may be an option to increase one’s available supply.
Merger and Acquisition Trends
The recent nationwide economic challenges have inspired some business owners to consider a merger or acquisition (M&A). While some business owners are driven to sell, others are motivated to expand. On either side of a merger or acquisition, significant financial consequences may follow. Whether buying or selling, it’s important business owners stay on top of factors that are shaping the process to ensure they are investing in their company’s future in a way that aligns with their long-term financial goals.
Due to its importance across industries, M&A value is often impacted by a company’s supply chain operations. A diverse supply chain can promote rapid business growth, improved cash flow, operational efficiency and lower expenses in a time when recent supply chain disruptions provoked a defensive response from businesses. As a result, owners are now willing to pay a high price for a diverse supply chain in order to withstand future financial instability.
Shifts in our economy have highlighted business qualities that encourage sustainability and strength through periods of uncertainty. When buying or selling, a company that has a strong balance sheet, broad financial capabilities, geographic diversification and product diversification will stand out to the interested party. Furthermore, during M&A transactions, it is common for a company’s Environmental, Social and Governance (ESG) impacts to be measured through a metric-based report. Investors are using ESG reports to make investment decisions and are interested in businesses that are low risk with room for growth.
Investment during Inflationary Periods
High prices from inflation have affected virtually every industry, causing owners to rethink how they do business. When deciding where to invest, businesses with plenty of cash and capital at their disposal may consider purchasing assets with growth potential to stay ahead of inflation. Property or equipment investments, for example, can allow for greater operational capacity or efficiency, thus strengthening a business’s position against inflationary pressure.
In a high-growth market, it’s important businesses keep up with their budgets to plan for future investments and to set aside funds in case of economic instability. To assist with budgeting, there are several financing alternatives and tools that can help manage interest rate risk. Scheduling a meeting with one’s banker and other financial advisors is a great first step when exploring opportunities that best fit one’s needs.
Form a Consultative Relationship with a Banker
Owning a business in a high-growth market amidst economic uncertainty may mean risky financial investments or unforeseen challenges. A strong consultative banking partner can help business decision makers form a financial strategy tailored to their business’s unique needs and expansion goals. Working with a consultative bank can help one successfully take advantage of the wide variety of financial opportunities available in Phoenix.
Brian Crisp is regional president for Arizona at Enterprise Bank & Trust. With more than 20 years of banking experience and close ties to the Phoenix business community, he oversees all aspects of the bank’s operations in the state and facilitates the bank’s growth in the region to meet existing and prospective clients’ expanding needs.
