Resources | Market Trends | May 21, 2024

What Are the Top Threats to Business in 2024?

This is what’s keeping business leaders awake at night.

This is what’s keeping business leaders awake at night.

When looking at the financial health of a company, it isn’t enough to focus on your company’s mission. You also have to be ready for all the external threats waiting to derail your success. And that can be tricky because the top threats in business usually don’t announce themselves. 

That’s why C2FO surveyed more than 1,000 executives and business leaders about their biggest concerns for the coming year. Their responses were part of this year’s Working Capital Survey, an in-depth report that gathers insights about general economic conditions, the availability of capital and other key issues.

Specifically, we asked respondents which factors they expected to negatively impact their companies in the coming year. Here are their responses, which could help inform your own business planning.

Inflation pressures

This was the single most cited concern among the survey’s respondents. About 60% identified it as a threat. 

Inflation raises the costs of materials and staffing, forcing companies to make cuts or raise their prices in order to remain competitive. Since the pandemic, inflation rates have soared, but they started to abate last year, raising hopes that things might return to normal in the near future. In most developed economies, that’s an annual inflation rate of 2%.

Unfortunately, that prospect has been called into question, at least in the US. Inflation rates started ticking back up in the first quarter of 2024, leading the US Federal Reserve to warn that it might take longer to lower interest rates. Inflation started to ease again in April, but the earliest rate cut probably won’t take effect until this fall. 

Inflation has steadily declined in the European Union, and the European Central Bank might reduce rates as soon as June. The situation isn’t as clear in the UK, which saw a decline in annual inflation, but at a slower rate than expected. 

Potential recession or slowing economic growth

Just over half of respondents — 51 % — listed a slowdown as a serious potential business threat. The percentage varies depending on the specific country.  

Overall, the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) both are forecasting global GDP growth greater than 3% for 2024. India is expected to grow by 6.6% in 2024, according to the OECD, followed by Indonesia (5.1%) and China (4.9%). 

Many developed countries, though, may grow more slowly. The IMF is predicting growth of 1.7% for those nations, with some countries experiencing results so slow that they run perilously close to negative growth. According to the OECD, the euro area is on pace for growth of 0.7% while individual countries like the UK (0.4%) and Germany (0.2%) could perform worse. 

Worker shortages

According to the survey, 49% of respondents said worker shortages could have a negative impact on their operations.

There is a surplus of jobs compared to available workers. In early May, for example, the US Chamber of Commerce reported 8.5 million job openings but only 6.5 million unemployed workers. The overall share of the population participating in the workforce is down. Certain fields, like nursing and law enforcement, are finding it particularly difficult to find new hires with the right skills. 

Europe is going through a similar experience. According to the European Union, about 63% of small and medium-size businesses can’t find all the talent they need, and the EU has identified 42 occupations with shortages.

When asked if they planned to add staff this year, 43% of Working Capital Survey respondents said they would, though of those, the largest cohort said their number of employees would grow only by 1% to 5%. 

Supply chain shortages/availability of materials

Supply chain issues were mentioned as a business threat by 48% of those surveyed. 

The good news is that conditions have improved substantially since the worst of the pandemic. In fact, according to a recent GEP Global Supply Chain Volatility Index, global supply chains are close to operating at full capacity. Many companies are also investing in new capabilities and technologies such as warehouse robots and delivery drones. In fact, according to EY, about 45% of supply chains are expected to be mostly autonomous by 2035.  

But we’re still a long way from 2035, and several freight experts think we’re still vulnerable to another “everything shortage” because supply chains have largely gone back to just-in-time inventories, FreightWaves reported. It’s possible that supply chains could suffer another pandemic-type shock that they’re not prepared for. 

Cost of raw materials and inputs

About 47% of respondents were concerned that higher costs for materials and other inputs could negatively impact their companies’ growth. 

The World Bank forecasts that commodity prices will decline a little this year but remain elevated compared to the years before the pandemic. That’s partly because access to some materials is still limited. Global conflicts also play a role in pushing prices up, as does demand from China and the clean-energy industry, which has a big need for metals. 

Supplies are expected to improve, but demand for those materials will increase, too, the World Bank wrote in its Commodity Markets Outlook for April 2024.

Global conflict or war

About 42% of those surveyed cited this. Some of those respondents were no doubt thinking about the war between Russia and Ukraine, or the one between Israel and Hamas. Others could be worried about the potential for conflict in areas where it hasn’t broken out, like Taiwan and China.  

War can raise the price of key resources like oil, grains or even microchips if an affected country is a top source. Conflict can also make it more difficult to ship goods — like, for example, the attacks on ships in the Red Sea during the early stages of the Israel-Hamas war.

Interest rates on loans/cost of borrowing

About 42% of respondents mentioned higher interest rates as a threat in business. And that makes sense — in many countries, rates are still the highest they have been in decades. 

Central banks raised rates in an effort to cool demand and push back against runaway inflation. Last year, it looked like the strategy was working as inflation growth ebbed over several months. It led many market watchers to expect multiple rate cuts in 2024. 

But that became more complicated when, as mentioned above, the US saw its YoY inflation rates grow in the first quarter. The US Federal Reserve said it is now planning to delay any cuts. 

Theft, shrinkage and losses

About 40% of respondents cited this concern. In the US last year, there were several high-profile cases of major retailers reporting large losses attributed to shoplifting and theft and, in some cases, shutting down locations as a result. Meanwhile, one report puts shrinkage losses at more than $100 billion.

Some experts question the exact size of the problem because data is either limited or “fuzzy.” And this year, several retailers are saying the problem has reversed itself. Others have just stopped talking about it. 

Wage increases

Worker shortages come with an unfortunate but logical side effect: Retaining and adding new staff suddenly become more expensive. As a result, about 35% of respondents were concerned about the need to pay employees more. 

Wage growth has eased substantially compared to a few years ago. In March, Indeed.com found that year-over-year wage growth was 3.1%, down from 9.3% annual growth in January 2022. There are still several fields, like child care and law, that are earning above-average raises, though. 

Natural disasters/climate change 

About 35% of this year’s respondents were concerned that climate change could harm their companies’ growth in 2024. Another 35% cited natural disasters.   

Higher risks of extreme weather and fires not only raise the risk of direct damage to company property, they can also make it much more difficult to quickly and safely distribute goods. More severe drought, flooding and other events can impact agriculture production, too.

The bottom line on business threats in 2024

Some of the top concerns — inflation, slower growth, rising costs — are ultimately tied together by funding concerns. Namely, how will businesses find the capital to stay in business and keep growing, especially when interest rates are so high?  

C2FO was built to help businesses of all sizes access working capital quickly and affordably on their terms, so they can continue to thrive. Learn more about how our solutions benefit suppliers here. 

And download your copy of the 2024 Working Capital Survey here.

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