Can Your Company Win the Battle Against the New High-Interest Rates?
Now that the Federal Reserve is set to tighten the monetary and financial system of the country, all companies in the United States are bracing for the upcoming high-interest rates. The Goldman Sachs anticipates that the rates will yield as high as 4% for the US 10-year Treasury threshold. If this happens, the companies would have to generate at least 200 basis points to neutralize the higher interest rates in order to be able to keep their business and pursue internal and economic growth.
Invest in Long-term Growth
Goldman recommends that companies should invest in areas that allow business growth. Growth-enhancing investments prove to outperform high-interest rates. An example of growth investment is your capital expenditure. Don’t be afraid to spend more capital to upgrade your business and customer service. The more customers get satisfied with your services, the more they’re likely to stick with you. Always remember that customer loyalty serves as your business’ lifeline.
Aside from that, make sure to invest in Research and Development (R&D) since it’s a great method to let your business grow by introducing new products and services to your customers. R&D enables your business to beat your competitors and keep up with your customer’s changing demands without allowing it to fall behind and not catch up with the latest trends. The ROI might not come right away, but there’s enough time frame for your business to rebound and pay the interest rates off.
Merger and Acquisition (M&A)
Another great way of offsetting the higher interest rates of Federal Reserve is to engage in M&A. M&A is a great way to diversify and expand your company’s products and services to penetrate another market.
If your company is doing well and is aiming for an expansion, you can merge with another one which has a greater influence and customer outreach to your targeted market. One great example of M&A is when Amazon acquired Ring, which is the leading provider of Smart home security products. Thanks to Ring, Amazon has been able to enter the Smart home products industry. While on the other hand, Ring is able to achieve a global customer outreach thanks to Amazon’s customer fan base worldwide.
Invest in New and Emerging Markets
Goldman encourages businesses to invest in emerging markets, particularly in technology and innovation like Artificial Intelligence (AI), automation, and 3D printing. These types of markets offer high potential returns which can eventually create massive opportunities for businesses to grow.
In fact, emerging markets yield around 14% of Sales per Share (S&P), leaving more room for internal growth. Make sure to sort out the best emerging market today and start investing as early as you can. In a few years time, you’ll start reaping your investments.
Assess Your Sustainable Margin Improvement
The high inflation rates, an impending tariff on steel and metals, and higher wages can impose risks on your company margins. Aside from that, the Brexit and Fed high rates might also affect the importation and exportation sector of your company. You need to take these into consideration and assess whether your business can withstand these factors. If not, then you might have to face a difficult decision either to do a downsizing or automate some tasks or areas of your business to cut down your costs.
Sustaining Your Business Against Higher Rates
As of now, the current Fed high rates is within the manageable 3.5% threshold level. But, with Trump’s changing policies, we cannot deny that these policies can either make or break your business. It’s better to think of strategies ahead of time to prepare our company for any hurdles or factors that can affect its operations.
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