As business valuation professionals, understanding the current economic landscape and its impact on small and medium-sized businesses (SMBs) is crucial. Recent findings from CBIZ’s Fall 2024 Main Street Index reveal significant staffing challenges faced by SMBs, which have important implications for valuation practices.
Key Findings
- Workforce Reevaluation: 51% of SMB owners are reassessing their staffing levels and outsourced partnerships in preparation for potential economic downturns.
- Decreased Staff Utilization: Only 62% of businesses report full utilization of their staff, a 7% decrease from June.
- Rising Costs: 19% of owners have experienced significant increases in the cost of goods and services, with 18% seeing sharp rises in labor costs.
- Price Adjustments: 53% of SMBs have increased their prices, with 28% implementing price hikes of 5% or more.
Strategies Adopted by SMBs
To address these challenges, SMBs are focusing on:
- Enhancing compensation and benefits packages
- Offering flexible work arrangements
- Improving efficiency through technology adoption
Economic Context
Anna Rathbun, Chief Investment Officer at CBIZ Investment Advisory Services, notes, “We are at an inflection point in the economy, where uncertainty is high and labor data trends are inconsistent”. This uncertainty is compelling SMBs to reevaluate their operational strategies.
Implications for Valuation Professionals
- Cash Flow Projections: Consider how increased costs and pricing strategies might affect future cash flows.
- Risk Assessment: Factor in the potential for staffing instability and its impact on operational efficiency.
- Growth Forecasts: Evaluate how workforce challenges might influence a company’s growth potential.
- Industry Comparisons: Be aware of sector-specific trends, as some industries may be more affected than others.
Additional Considerations
- AI Adoption: 83% of SMBs report using AI tools, with 18% considering it very or extremely important for competitiveness.
- Policy Concerns: 58% of businesses believe tax reform should be a priority for lawmakers, while 49% emphasize healthcare policy.
Conclusion:
For valuation professionals, these findings underscore the need for a nuanced approach when assessing SMBs. The current economic climate presents unique challenges that must be carefully considered in valuation models. By staying informed about these trends and their potential impacts, we can provide more accurate and valuable insights to our clients in the SMB sector.
