McDonald Hopkins, a business advisory and advocacy law firm in Cleveland with an office in Bloomfield Hills, conducted its 2024 Business Outlook Survey and the results show business owners are approaching this year with cautious optimism.
The results showed 54 percent of business owners believe that business conditions in the United States will improve, reflecting a decline in optimism from 58 percent expecting improvement in 2022, and 70 percent in 2021. When asked about their expectations for their own business, 58 percent predicted improvement, a 16 percent drop from 2022.
The survey stated the decline in confidence can be attributed to challenges encountered in the past year. Respondents anticipate the challenges will linger in 2024.
The challenges include managing a hybrid workforce, hiring issues, inflationary pressures, a challenging transactional environment, and data breach concerns. Many also foresee more distressed real estate, particularly in the form of office space, emerging over the next 12 months.
Despite the cautious outlook for 2024, more than 50 percent of businesses expect to launch new products or services this year, relying on innovations and a strong intellectual property plan to support their expansion.
The survey also states since March of 2020, the workforce has seen constant change, but it’s clear the implications of the pandemic are here to stay, changing the way they do business permanently. The survey indicated 46 percent of respondents are struggling with hiring issues, and 42 percent stated they are still battling employees’ reluctance to return to a physical workplace.
“Nobody wants to work anymore,” noted one respondent.
Nearly 50 percent of businesses surveyed indicated the most challenging issues they’re grappling with are the transition and management of a hybrid workforce. The survey states 72 percent of businesses responded will offer some form of hybrid or remote schedule.
A total of 77 percent of those who offer a hybrid work schedule stated it has helped them attract and retain talent in the past year.
For the businesses that did not offer any remote or hybrid work environment, many noted reasons related to culture and communication improvements in addition to the necessity for on-site labor.
“Looking ahead, the remote work struggle is expected to remain in the limelight as an important issue for employers,” said James Boutrous II, chair of the labor and employment practice group at McDonald Hopkins. “The post-pandemic world has taught us, on the one hand, that there needs to be some flexibility in this regard by employers in offering some remote work, but the loss of culture and, in particular, hands-on training is really beginning to show itself in the slower development of needed skill sets of newer employees.”
Technology such as AI and non-compete covenants also topped the list of workforce challenges.
“The use of AI by employers in making hiring and promotion decisions continues to put employers at risk for potential disparate impact claims when the resulting decisions favor one group over another. Greater oversight and policy drafting will need to remain on the forefront in this area for employers,” says Boutrous.
Employers continue to await the FTC’s final decisions on the rules governing employers’ use of restrictive covenants to protect their legitimate business interests such as confidential business information and customer goodwill. A decision is expected this coming year, and likely by April.
In 2023, the U.S. experienced an unprecedented surge in cybersecurity incidents, setting a record that is expected to escalate in the year ahead. This alarming trend has heightened concerns among organizations regarding cybersecurity, data privacy, and the maintenance of consumer trust.
The survey results reflect this sentiment, revealing 61 percent of companies are entering 2024 more concerned about data breaches than ever before. Moreover, 70 percent of respondents indicated their company is actively pursuing additional security measures.
Despite the growing unease and proactive approach, less than half surveyed said they had an incident response plan in place if something were to happen right now.
“The survey reflects what our team deals with on a daily basis and just how vital cybersecurity is to a company’s success,” says Dominic Paluzzi, co-chair of the national data privacy and cybersecurity practice group at McDonald Hopkins. “Since the inception of our data privacy and cybersecurity practice group, we’ve responded to over 15,000 data security incidents for clients, and over 2,300 of those issues stem from last year alone. Businesses need to be proactive and protective, not only because the number and severity of incidents are expected to grow but state and federal data privacy compliance laws are constantly evolving, too.”
About half of all respondents noted they struggled with inflation and nearly 40 percent said they had to pass price increases onto consumers. Challenges such as rising interest rates, supply chain disruption, and difficulty accessing new capital topped the list of financial distresses for businesses in the year ahead.
The survey showed 26 percent of respondents said they’re exploring opportunities for strategic transactions, such as mergers and acquisitions. And 63 percent expect the challenges to persist in 2024.
“The results of our Business Outlook Survey mirror the trends we see generally in the broader market,” says David Agay, the chair of the strategic advisory and restructuring department at McDonald Hopkins. “While 2024 should see alleviation of certain of these externalities, the stresses of 2023 likely will continue to impact the operating environment and balance sheets of many businesses into 2024.”
The survey indicated 72 percent of business owners anticipate seeing more distressed real estate in the year ahead, and overwhelmingly, they anticipate the real estate to be in the form of office space.
“With continuing higher interest rates, less availability of financing options, and tenant downsizing in the office space area, we expect distressed real estate in the office space segment to continue into 2024,” says Jason Smith, chair of the real estate practice Group at McDonald Hopkins. “This distress will present challenges for some and opportunities for others. However, as required square footage for tenants normalizes and interest rates likely begin a downward trajectory, this distress should start to ease in the second half of 2024.”
Nearly 200 business owners and executives from a variety of industries participated in the survey, which ended in mid-January.
