Business Leaders Outlook
What’s Next for Leaders of Midsized Companies?
After a tumultuous 2020, here are five key trends that may shape business opportunities in 2021 and beyond.
After what may be the most challenging year in most business leaders’ working lives, they’re due a moment of celebration.
J.P. Morgan Chase Commercial Banking’s 11th annual survey of U.S. business leaders found that many companies showed resiliency in 2020 by pivoting almost overnight to remote work, digital solutions and new ways of serving clients. They performed as few might have imagined during the largest quarterly GDP decline on record.
The past year redefined the future for most business leaders and their companies. Permanent changes in operating models introduced new products and markets. For some, the continuing economic recovery may offer a profitable opportunity to step away.
Before you decide which path to take as an owner or top executive of a midsized company, you’ll want to consider these five key trends:
1. The U.S. economy is expected to grow.
What may become known as the “pandemic recession” of 2020 was a supply-side phenomenon—like a natural disaster—with lingering effects concentrated within the leisure and hospitality industries. U.S. households, conversely, accumulated excess savings of more than $1.5 trillion by September. Many experts believe this may lead to a significant increase in demand for goods, services and experiences once COVID-19 restrictions lift and fears subside.
Business leaders certainly have great expectations. The 2021 Business Leaders Outlook survey found1:
- By late 2020, more than 80% were optimistic about their company’s performance, with more than three-fourths operating at or above 80% of their pre-pandemic capacity and 17% exceeding it.
- More than two-thirds of survey respondents said they expected their company’s revenues to increase in 2021, with nearly as many expecting an increase in profits. These are on par with expectations from the 2020 annual survey and support the contention that COVID-19 didn’t create a true macro recession.
2. Hiring challenges will continue and intensify.
Even though global COVID-19 vaccination has begun and will likely accelerate throughout 2021, experts say the pandemic still has months to run in the U.S. and even longer in other parts of the world. This will likely affect recruitment until companies establish post-pandemic work models—in-person, remote or hybrid—as well as staffing needs.
Meanwhile, maintaining existing workforces could be a new challenge. Business owners and HR teams may need to revisit how they communicate and reinforce business values with staff to preserve workplace culture in an extended work-from-home environment.
Our business leaders survey found:
- Hiring the right talent likely will remain challenging for many companies even after a full pandemic recovery. A record-high 40% of business leaders surveyed said they were looking to hire because their current employees are overworked.
- As was the case before the pandemic, companies generally face a lack of qualified applicants. However, many of today’s unemployed come from hospitality and leisure industries and may lack requisite skills or geographic proximity to provide needed relief to employers in other industries.
- More than three-quarters of respondents said sales growth would be their top driver of new hiring plans—an outcome that’s likely dependent on quicker COVID-19 containment.
3. Selling or transferring your business soon could be advantageous.
For business owners developing an exit plan, now could be a good time to put those plans into motion.
For one thing, the U.S. gift and estate tax exemption that enhances the value of the sale and transfer of companies is set to expire at the end of 2025. The Tax Cuts and Jobs Act of 2017 doubled the exclusion amount to $10 million per individual and $20 million per married couple through 2025, at which point it will revert to prior levels.
The exclusion amount is adjusted for inflation every year—for 2021, it’s $11.7 million per individual and $23.4 million per married couple. However, Congress could pass legislation changing the exclusion amount and the sunset date.
The pandemic could also play a role in your planning. It’s important to note that a decline in 2020 financial performance and uncertainty around future cash flows could lead to a lower valuation of a business. Business owners may want to consider transferring ownership interests to their heirs, taking advantage of any valuation discounts and/or declines in value due to the pandemic to move more assets and their future appreciation from their taxable estates.
Here’s what our Business Leaders Outlook respondents told us of their intentions:
- A quarter said they had a plan in place to sell or transfer ownership of their companies.
- Nearly two-thirds of those planning a business transition intend to sell to a third party or management group.
4. The global stage is shifting enough to alter expansion plans.
A five-year trend toward deglobalization appears to be continuing, but leaders who still see expansion abroad may want to take a wider view on where to place operations.
The most significant geographic shift appears to be a gradual and continuing move away from China—in large part due to China’s economy becoming more consumer-oriented and technologically advanced. This structural shift, combined with the impact of tariffs, have led some companies to shift production and supply chain options from China to other Asian countries.
Other companies may be more likely to plan their global future around evolving supply chain hubs throughout North and Latin America.
As companies rethink their global footprint, the pandemic-era acceleration of financial and supply chain technologies will probably be top-of-mind. Trade disruption during COVID-19 has placed a greater focus on addressing supply chain vulnerabilities in critical industries, including personal protective equipment suppliers and pharmaceuticals. Expanding contactless commerce and eliminating manual, back-office processes can also help companies do more globally with far less investment.
Additionally, executives responding to our survey said:
- Future sales growth outside the U.S. is expected to remain at a similar pace compared to 2020, with the number of countries they plan to operate in increasing at roughly the same rate as last year.
- Trade barriers and tariffs will continue to be a key focal point for operating across borders. The new administration has stated it will remain tough on China and continue many of the prior administration’s policies, leading to a continued increase in new trading partners like Vietnam and other Asian countries.
5. Digital adoption keeps accelerating—along with its costs.
Pandemic-induced lockdowns and fears of contagion helped accelerate the adoption of touchless commerce and digitalization. Businesses implemented electronic solutions almost overnight—from virtual meetings to long-planned investments in e-commerce and digital treasury.
For many companies, these changes are destined to become permanent. However, greater digital efficiencies can also produce greater cybersecurity risks:
- Nearly 40% of executives placed malware and ransomware attacks as their top cyber concerns, with payments fraud at 17%.
- With 71% of respondents shifting part or all their employees to remote work, businesses increased their focus on employee education and training and developing countermeasures to prepare for future cyberattacks.
As the business landscape continues to change, find more insights for business owners at J.P. Morgan Private Bank.
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