Inflation, Taxes and Market Volatility!

The Good News-

We're heading to Nashville next week for an exciting week at #TMTBootcamp - Robin Robin's marketing extravaganza- the theme is The Godmarketers! I love the Godfather and I love going to bootcamp - next week should be amazing. Robin does not disappoint with her amazing line up of speakers and who doesn't love the friendly - Better Your Best competition.

When I first decided that I wanted my practice to focus on the MSP industry, Robin stood out. I've been paying attention as she increases her reach and diversifies her business. As a sponsor, I love that she is intentional in all aspects of her conference. She makes sure that her clients and sponsors are getting value during the conference and has a great team to support everyone.

If you are planning to be there, please come by our booth or better yet, come see my breakout session on Tuesday at 1:30. I'll be talking about Exit and M&A trends in the MSP space- Should I Stay Or Should I Grow?

Russia Ukraine War and the Potential Impact on SMBs.?

It has been eight weeks since Russia invaded Ukraine and despite the heavy sanctions imposed by the US and its allies, there seems to be no end in sight to the war as Putin continues his push into Ukraine. As the war drags on, global economies will be affected due to the high uncertainty and economic downturn. SMBs in the US are already feeling the effects and are having to adjust their business operations. Disrupted supply chains, clogged up inventory, historically high oil prices, and skyrocketing inflation will shake up small business operations in the US with cost pressures hitting the bottom line and profitability of these firms. As oil prices spike, entrepreneurs, and SMBs can expect their energy and operation costs to rise. The longer the war drags on the more devastating the potential effects.

As Ukraine is one of the biggest grain producers worldwide, disruptions to production and logistics will further tighten wheat and corn markets, pushing prices even higher. Ukraine and Russia are leading exporters of commodities such as wheat, corn, cooking oils, and metals such as aluminum and nickel, and prices have soared since the Russia Ukraine war. Fertilizer prices are also rising as supply from Russia and Ukraine faces new restrictions. There are huge implications for US retailers regarding food prices as Ukraine and Russia are major agricultural regions. Bakeries and restaurants will be affected and are already feeling the pinch from increased wheat prices. Supermarkets will also be affected, and these companies will have to find a way to pass on some price increase to their end customers. However, they can only go so far in increasing prices before they begin to face some pushback from customers.

SMBs know that they cannot indefinitely pass on price increases to customers, and they will eventually take a hit and see reductions in their revenue and profitability. Eastern Russia and Ukraine are net exporters of steel, cumulatively of almost 40 million tons, and supply chain disruption could lead to an increase in steel prices in the short term. As such SMBs in the iron and steel industry could be negatively impacted. By extension, the construction industry will be affected which could mean higher real estate prices, higher rent, and lease prices, etc. Construction companies, home builders, contractors, appliance manufacturing businesses, are just a few that rely significantly on steel for their business operations.

Growing Russian Cyber threat

Biden has repeatedly warned the US business community of a growing Russian cyber threat and urged companies to bolster their cyber defenses. More attention should be given to Russia's formidable cyber forces that could be preparing to unleash waves of cyber-attacks on Western energy, finance, and communications infrastructure. Small, Mid, and Large-sized companies need to prepare for these possibilities. MSPs are already boosting their own protection and helping their clients implement additional security measures to prevent what they expect will be a sharp increase in cyberattacks, including ransomware threats, in the wake of the Russian invasion of Ukraine.

Small Businesses should take steps to bolster their online cyber defense and may need to work with an MSP company to review possible critical vulnerabilities that could be targeted. MSPs that can position themselves as cyber security experts stand to benefit tremendously.

Opportunity for Managed Service Providers

At a time when threats to network and data security are on the rise, MSPs can help overwhelmed small and mid-sized companies boost their cyber security defenses. SMBs are likely to get better cyber security services working with MSPs rather than implementing a do-it-yourself approach or by relying on in-house IT staff, who are oftentimes limited in their cyber defense capabilities.?

MSPs play a crucial role in protecting businesses across multiple attack vectors. They provide essential security solutions against cyberattacks, including up-to-date expertise and security solutions to counteract the latest cyber threats. Countless SMBs are already partnering with MSPs, oftentimes in addition to their existing in-house security program to protect their assets. MSPs that can provide quality professional monitoring and management services, protecting hardware and data from potential cyberattacks, can expect increasing demand for their services.

Economic Highlights

US Inflation Rate Accelerates to 8.5%, a 40-Year High

April numbers just released has the annual inflation rate in the US accelerated to 8.5%, the highest since January 1982 due to soaring energy costs, labor shortages, and supply disruptions coupled with strong demand. Disruptions to the oil and commodity market due to the war is a major contributing factor and will continue to drive up inflation over the next few months. Increases in the price of gasoline, shelter, and food were the leading contributors increasing by 6.6%, 1%, and 1.4% respectively in February.

For most Americans, inflation is outpacing any pay raise received over the past year, making it harder to afford necessities like food, gas, and rent. US Households are spending an ever-increasing chunk of their incomes on fuel and heating and will have less cash and disposable income for purchasing other goods and services. As mid-term elections draw closer, inflation has become one of the top political threats to President Joe Biden and congressional Democrats. SMBs will also undoubtedly be affected by the rising inflation.

The US raises interest rate to 0.5% for the first time in 8 years

In efforts to curtail the inflation surge, the US Federal Reserve on Wednesday, March 16th raised interest rates by a quarter percentage point to 0.5% and signaled that it would raise rates six more times in 2022 to fight the fastest inflation in over 40 years. This rate increase was announced as the US economy faces new uncertainty caused by the Ukraine war and coronavirus outbreaks in China. A growing number of policymakers and analysts see the Fed's benchmark overnight interest rate rising to a range between 1.75% and 2% this year. Rising interest rates increase the cost of borrowing for SMBs which could negatively affect their bottom line.

Covid Outbreak in China

China recently announced its biggest city-wide lockdown since the Covid outbreak began over two years ago. Authorities had long resisted locking down the city of some 25 million people to avoid destabilizing the economy, however, amid skyrocketing covid cases, sentiments have shifted. Half of Shanghai will be locked down initially while Covid-19 testing is carried out. The lockdown will then move to the other half of Shanghai. This COVID outbreak fear and shutdown along with concerns over declining energy demand rocked the oil markets and saw US crude tumbling 7% and the global Brent crude benchmark losing 6.8% on Monday, March 28th. This is due to China being the largest oil importer in the world.

Lastly

Thrive CFO will be watching for any changes in upcoming legislation. The Secure Act 2.0 passed the house - this has many feature that SMBs and MSP would find valuable. If you would like to be in our MSP Financial Community where we will release timely information you can join here.