The Roaring Twenties Are Here Again: Proceed with Caution

Celebration, party

Here are three risks every business must be managing to harvest the best of these Roaring Twenties.

Estimates are that America’s economy is growing at a blistering 9% rate. Consumers and businesses are optimistic. There are daily headlines proclaiming another milestone achieved by digital technologies, clean technologies and connectivity that increases productivity while improving human/environmental health. With a sense of history, this moment is being branded as the “Roaring Twenties.”

But there is also an equal number of headlines on the disruptive risks embedded in these times. The global supply chain still struggles with pandemic hotspots that disrupt production and shipping. Climate change enhanced drought and excessive heat threatens this summer’s  western U.S. food harvest. America’s consumers, businesses and government have debt levels that will bite hard into our economy if interest rates do rise with inflation’s emergence.

Managing risks is as important to business success as taking risks.

Here are three risks every business must be managing to harvest the best of these Roaring Twenties:

1. Sustainably Manage Your Global Supply Chain

China, Japan, Korea, Taiwan and, increasingly, countries like Vietnam and India are the manufacturing engines for your purchase of products, equipment, and parts. Environmentalists have spent much of the last twenty years waving their arms in alarm over the lower level of risk management being deployed in these territories compared to the U.S. The Covid pandemic has made those concerns all too real.

One key lesson learned is that supply chain sustainability best practices are business best practices. The days of global supply chain contracts singularly focused on price, quantity, product quality, and delivery schedule are over. Sustainability supply chain practices of specifying, measuring, and auditing human health and environmental performance are critical to protecting supply chain viability.

2. Will Food Supply Disruption Be the New Normal?

If you have ever driven I-5, which runs the length of California’s Central Valley, then you have seen the endless stream of eighteen wheelers hauling open trailers filled with tomatoes. Those tomatoes account for 90% of the tomatoes that go into America’s ketchup production. And right now, that tomato production is questionable due to climate change enhanced drought and excessive heat.

That is just one example of what is emerging as the new climate change norm for food production. Over the last few years, we have had a corn shortage due to excessive rains. Last year a derecho disrupted Iowa farming. As someone who has been studying climate change since the mid-1990s, these agricultural disruptions offer depressing support for climate science weather model forecasts. Our food stores, restaurants and business break rooms are now the front lines confirming that climate change is real, disruptive, and more costly due to increasing food prices. This will move “farm to fork” from a trendy food brand to an increased awareness by consumers and businesses that sustainable farming practices are critical to managing our food supplies and prices.

3. Sustainable Finance

The first lesson learned in finance is that debt is an accelerant. If your business is booming, then debt is the fuel that funds new investments that will capture customers. But if sales slow, then debt is a loadstone that can sink a business.

The business question for our Roaring Twenties is whether the debt lessons from the last Roaring Twenties have been learned. The 1920s were defined by consumer exuberance and increasing financial speculation inflamed with debt. Today, the financial headlines are filled with stories of 100+% annual price increases in stocks and cryptocurrencies. A sobering reality is that stock margin debt is at an all-time high, approaching $1 trillion. This debt has doubled since 2013, spiking at more than 60%. The last two times the stock market experienced this level of margin debt it was followed by the dot.com bust and the Great Recession. The key point is not that debt caused these major recessions. The key economic lesson is that too much debt became an accelerant in turning a business downturn into a major recession.

“Cash is king” is the second lesson typically learned in finance. Whether on a personal basis or as a business this maxim is the ultimate insurance protection against debt exuberance. How much cash should you have in reserve? The cynical answer is you will know when you run out of it. The traditional answer is having enough cash to cover six months of fixed payments. In today’s Roaring Twenties, with heightened debt levels and disruptive volatility, it would be very prudent to conduct a monthly risk assessment with a financial expert experienced in assessing and managing debt risks.

So, yes, there is cause for optimism, but we also need to proceed with caution as we navigate this new decade.

Related content:

Identifying Business Opportunities and Strategies Around Covid Volatility [Video]

How to Survive (and Thrive) in the Midst of an Economic Crisis

Dealing with Small Business Challenges and Setbacks

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