Of course the big news was the failure of two Silicon Valley banks. Although looking at the reasoning and details, this is far from a crisis, and more of an unfortunate circumstance (overly simple explanation = rising rates made the bank’s safe investments not worth as much short term).

But for me, the more noteworthy part was what happened in March’s Federal Reserve meeting. The Fed ended up raising rates again. Of course, it was a small increase (25 basis points), but it signaled some interesting thoughts if you’re into reading the economic tea leaves: banks in general are just fine, and they are NOT going to back off trying to tame inflation.

Think about this – the two bank failures were at least partially attributed to rising rates. And the Fed’s response was akin to “yea, it’s unfortunate for these two, but it happens. Now, about inflation….”    

In other words, the Fed obviously feels it was a perfect storm of particular investments and widespread withdrawals that contributed to these failures, and it’s more an anomaly than a trend. 

The second thing is, even with the talk of “maybe they should back off” the fed essentially said “nope, taming inflation is too important” (I am embellishing and paraphrasing of course. Nobody said these things. But the actions make this conclusion a pretty logical one.) 

I’ve been saying for a year now that rates aren’t going to return to previous 2021 lows for a long time, and this cements my belief further. I do feel we might be getting close to peak rates, but I don’t see cuts for quite some time.

Now that I’ve done rates to death, let me discuss one other thing – the talk of a possible recession…. 

I don’t know about you, but I’ve been hearing this for an entire year now. I’m beginning to think this is going to be a perpetual thought in our 24/7 social-media-driven news cycle, and people say it just to say it. As I’ve alluded to in a few recent posts, demand is still here, people still want goods and services, and the jobs outlook continues to be strong – there are more jobs than workers to fill them. I think we’re going to level off nicely, without a recession. 

So in the end, my outlook is considerably brighter than the news. Maybe you should come here more often!   

To refresh your memory, during the busy holiday travel season, Southwest Airlines canceled a great majority of their flights. At first they blamed the weather, but that narrative didn’t last long. After all, every other competing airline, serving the exact same airports, had scant issues with the weather. Sure, there were a few storms, and other airlines had to cancel / move around a few flights, but nothing even remotely approaching Southwest’s issues.

It was then revealed that Southwest’s software was outdated, and not up to the task of efficiently scheduling pilots and crews amidst a hiccup (like a winter storm.) It was also revealed that they knew their software was outdated, but put off updating it due to costs. Coupled with leaner operations, this led to disaster for the carrier. 

As I write this in January 2023, it’s unclear how much damage was done to their reputation, but I can’t imagine a scenario where this doesn’t affect the future bottom line in a major way. Thousands of customers will never trust them again. 

Software… we often don’t think about it, but for many companies, it’s their nervous system, and if there’s a glitch, everything is affected. But upgrading software is easy to push aside because it’s usually not a direct profit-generator. Buying a new production machine (or a plane) is both exciting and directly profitable. But upgrading your software… only the IT guys get excited about that – everyone else groans.  

Well, we can’t help you with the excitement part, but there’s a way to get new software without worrying about the non-immediate revenue aspect of it – you can finance it!

Software financing is something that not many companies consider, probably because not too many lenders offer it. But a few do, including us. In fact, we’ve been offering software financing for a LONG time. Did we even finance applications that came on floppy disc? You bet we did! 

Do not let aging software affect your operations in a negative way. It doesn’t have to be “we know we need this, but the budget…”. Spreading a major software purchase over years of monthly payments actually puts it more in line with the “back end” nature of its revenue responsibility. That’s smart business. 
We’re well into the 21^st century – software runs everything. Staying competitive means your backend operations need to be as efficient and modern as your machinery. In short, software matters. Just ask Southwest.  

2022 was the year of inflation and interest rate hikes, both of which I’ve discussed at length in this blog. But there’s no getting around it – high inflation and rising interest rates (which are rising to combat said inflation) have affected every business out there. 

So with that in mind, here are a few year-end strategies that can help your 2023 start off right. 

1. Remember That Rates Are Likely to Keep Rising

I’m confident that the rates we have right now will be lower than any rate we see in 2023. Hopefully we won’t see several 75 basis point increases in a row anymore, but the scenario of “no 2023 increases” is extremely unlikely. And decreases are even more unlikely. 

This means you really can’t afford to hold out for lower rates if you need to replace machinery or make improvements. Because you will be holding out for a looong time. Which brings me to… 

2. Do More Than Your Competition.

Think about cyclists racing – the prevailing thought is you separate yourself from others on the difficult hills, and not the flat ground where it’s easy to ride. It’s the same right now for businesses.

In a booming economy with low rates, everyone can be a competitor. But it’s in the more difficult economic times that companies really make strides and pass others. Let everyone else turtle because rates went up a point or whatnot. Demand is still strong for most industries, and the companies that can best meet that demand will be the winners once the economy turns (and it always turns).  

3. Don’t forget your Section 179 deduction. 

Listen, I know taxes and “the IRS” are the last things you want to hear right now, but hidden within those words is the single best business tax deduction possible: Section 179.

Almost every piece of tangible equipment you bought for your company in 2022 is likely eligible for a full Section 179 deduction. And the deduction is good up until $1.08 million dollars of purchases is reached. 

For small businesses, that prettymuch means your entire years’ worth of equipment purchases can be deducted (as opposed to depreciating a small amount each year). Depending on your revenues, that can make a massive difference in your bottom line right now. And what company out there doesn’t need the money right now?

2022 was not easy by any stretch. But we’re all still here and 2023 is coming no matter what. This is what we have to work with, so let’s make the best of it. 

Happy New Year everyone!