The first impact of 2020 I would like to discuss is pent-up capital. Whenever there is uncertainty in the markets or life in general, people tend to tighten their belts and hold off on spending. The same can be said for businesses. Businesses cut costs during the pandemic by conducting involuntary layoffs, furloughs, reducing capital expenditures, etc. in an effort to maintain profitability. This means that business growth and innovative advancement have been, at the very least, delayed. There are a few potential results of this delay. One scenario is there will be a significant influx in investment activity once consumer confidence and business activity return to pre-pandemic levels. This will result in job creation and a provide a significant jolt of energy to restart the economy. Unfortunately, life post-pandemic in the new normal is still uncertain. Certain areas of pre-pandemic life may be forever changed. As a result, we may encounter a permanently altered economic outlook. Innovation and capital expenditures will likely be met with increased scrutiny related to the risk involved, perceived need, and the presence of lower-cost alternatives, and, as a result, struggle to return to pre-pandemic levels. This could result in a slower, but steadier, post-pandemic economic growth.
With business and individual cost-sensitivity increased, what will the effects of 2020 be on business activities? More and more individuals are working remotely, and many companies have not seen a reduction in productivity as they had initially expected. Many businesses are realizing the benefits related to the cost of maintaining a physical location do not outweigh the anticipated costs of remote work. In fact, some companies are already experiencing a financial benefit by utilizing fully remote workplace. Depending on the number of companies who shift to a fully remote workplace, real estate may be unavoidably harmed with millions of square feet of office space left vacant.
Going forward I suspect businesses will invest more in technology and contingency plans that allow them to continue to do business in various world environments. A focus on work-life balance will be renewed and I for one have appreciated the extended time I get to interact with my family as a result of no commute and increasing my physical presence at home. I have also enjoyed increased productivity and focus that has come as a result of working from home. Let us take the positives from the pandemic and learn and grow as we move forward and adapt to the constantly changing world landscape.
For more assistance with business planning for 2021, contact your Larson advisor today.
