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Survey: San Francisco Businesses Cautiously Optimistic, Focused on Efficiency and Profitability

While economic concerns linger, overall positivity and confidence among San Francisco’s small and middle market companies are improving over a year ago — part of a growing trend of optimism among business across the West. According to Umpqua Bank’s annual Business Barometer survey, the West, with closer geographic ties to Asia and leading technology hubs, records higher optimism levels than other regions.

Consider these findings:

  • Fifty-seven percent of businesses in the West and 54% of San Francisco enterprises have a favorable view of the current economy. This compares to 33% in the Midwest, 39% in the South and 36% in the Northeast.
  • When asked whether they anticipate overall economic conditions in the U.S. will improve in the next 12 months, 46% of businesses in the West believe they will ― more than 33% in the Midwest, 39% in the South and 34% in the Northeast. Among those surveyed in San Francisco, 52% expect further improvement.
  • In San Francisco, 70% of businesses expect demand for their products or services to increase in the next 12 months.
  • Sixty-six percent of the city’s surveyed business leaders also expect their revenues to increase in the year ahead, and 63% expect profitability to improve.

A host of macroeconomic and local concerns still linger for San Francisco businesses. According to the survey, top concerns are inflation (57%), recession (37%) and rising interest rates (26%).

Inflation is an ongoing worry because of the city’s already high cost of living – from housing expenses to labor costs to taxes. Rising costs add ongoing pressure. Businesses are simultaneously concerned about recession, as the intersection of rising rates and inflation has often tilted the economy into a downturn.

The city’s technology sector has endured sluggishness over the past year, too. Tech giants have announced layoffs, while some companies have shifted operations to less expensive markets. Amid high housing costs, the construction and real estate industries in the city are vulnerable. This can have ripple effects, impacting tourism, small businesses and tax revenue for the city and county.

With these challenges in mind, growing optimism doesn’t mean aggressive plans for growth. Instead, businesses appear more focused on making targeted investments that enhance efficiencies to contain costs and strengthen profitability.

For example, among those surveyed, 85% are looking to digitize new areas of their businesses to improve efficiency. Another 40% are considering acquisitions to, in part, gain efficiencies that come with scale. Nearly 7 in 10 are considering significant changes to products and services, with profitability as a key motivator. Another 79% are very or somewhat likely to make changes to their pricing models, a signal they hope to boost prices without sacrificing sales. And more than 5 in 10 are considering bringing more of their manufacturing or supply chains back to the U.S., a growing trend among middle market businesses to reduce uncertainty.

Based on this year’s study, there are few takeaways for businesses to consider in the next 12 months.

  • Assess the soundness and relevancy of your business model: As the economic situation evolves, tech disruption impacts everything. It’s important to really know customers’ evolving needs and be positioned to continue meeting those needs with relevant products and services.
  • Prioritize operational efficiency, especially digitization and automation: Profitability (as opposed to aggressive investments in growth) is top of mind right now. Doing more with less and doing it smarter is important to shore up margins, enhancing profitability and creating a competitive advantage down the road.
  • Look for prudent investments and growth opportunities: It still may not be the time to take bold action due to continued uncertainty. Be patient but vigilant. Businesses with a strong cash position and sound business model will have opportunities ahead to strengthen their competitive position.

It’s critically important in times like these that businesses have a strong relationship with their banker who can help navigate these relevant topics. A good banker can be a resource as a business explores ways to be more efficient with working capital and can provide guidance and analysis if the business considers expansion, capital investments and growth.

Source : Bizjournals