What managers should do in a volatile economy

Business owners today face many direct challenges for the economy.

Major central banks continue to raise interest rates to bring inflation down to their medium-term targets. Higher interest rates affect the cost of capital. Other factors, such as Russia’s energy flows and sovereign debt dynamics, could mean higher funding costs and greater uncertainty for companies.

In Europe, bank lending standards have tightened, corporate demand for loans has weakened, and bank funding conditions have tightened. While we do not believe lending flows will freeze, we believe entrepreneurs are best served by reconsidering their funding options.

Business owners are wise to review the availability, cost, and terms of their loan agreements. Even if an entrepreneur doesn’t use debt to finance a business or long-term investment, it’s very likely that part of her chain of supply does. In times of economic uncertainty and monetary tightening, it is helpful to identify weak links early and plan for the worst.

In this volatile economy, there are three things business owners can do to consider funding.

Think about whether a fixed or floating rate makes the most sense. Some business owners prefer to fix their borrowing costs to minimize uncertainty about their spending. Refinancing to fixed-rate debt may make more sense for companies operating in eurozone countries, where debt dynamics and spreads may be under greater pressure.

Other business owners may prefer a floating interest rate regime, especially if they believe a slowdown in high economic activity will lead to central bank rate cuts. U.S., U.K. and Eurozone sovereign bond forecasts typically see a peak in interest rates in the third or fourth quarter of this year, but if inflation exceeds expectations or persists, it will depend on the data. Note that central banks may be surprised by sharp interest rate hikes. Rose.

Reassess internal credit agreements to identify and eliminate vulnerabilities. For many business owners, especially those who prefer retained earnings financing, intercompany credit arrangements with suppliers, customers, and other stakeholders, these arrangements are most likely to respond to changes in macroeconomic and monetary policy settings. Sensitive.

In the potential risk case of worsening growth and funding conditions in peripheral Europe, business owners are encouraged to identify adverse effects on intercompany credit. The terms of these arrangements should be reviewed periodically to ensure that they support ongoing relationships while prudently managing credit risk.

A related (but often overlooked) topic is asset protection. Entrepreneurs may consider ways to protect their capital and their own against potential credit losses and rising funding costs.

Take a fresh look at currency exposure and how to manage it. Changes in monetary policy are reflected in the real economy through both borrowing costs and foreign exchange rates.

I continue to suggest three tips for founders and other entrepreneurs when deciding whether active currency management makes sense. Develop a systematic plan for currency management. Consider currency opportunities as well as currency risk management.

Major central banks continue to raise interest rates to bring inflation down to their medium-term targets. Higher interest rates affect the cost of capital. Other factors, such as Russia’s energy flows and sovereign debt dynamics, could mean higher funding costs and greater uncertainty for companies.

In Europe, bank lending standards have tightened, corporate demand for loans has weakened, and bank funding conditions have tightened. While we do not believe lending flows will freeze, we believe entrepreneurs and business owners are best off revisiting their financing options.

Eric Thompson is a financial advisor to Thompson, Singor & Cimmino at UBS Wealth Management USA in Norfolk.please contact him [email protected].