With the year coming to a close, interest rates shifting, and layoffs hitting the tech industry, the turn into 2023 is proving uncertain as ever. Analysts say that each move the fed makes can have a 6-9 month delay for how it impacts the economy. Regardless, businesses must prepare. If there’s one thing every business owner has been subjected to in the past few years, it’s been a heightened need to adapt, pivot, and prepare.
Here are 10 Budget and Forecasting Tips for Businesses Going into 2023:
Tip #1: File 2022 Taxes As Early and Accurately as Possible
While both businesses and individuals saw delays in their tax returns being accepted (and receiving any refunds) in 2022, the IRS has warned that this issue may hold for the coming year’s tax filings as well. One of the key recommendations is to file early and accurately, particularly if you are expecting to receive a refund.
Tip #2: Review 2022 P&L with Your CPA, and Talk About Your Goals for 2023
Going into 2023 with a clear understanding of where your business presently stands financially, including the past year’s cashflow, expenses, and revenue streams will help you ensure your budget for the coming year is accurate and reasonable.
In addition to accounting for income and expense sources, it may be particularly helpful to pay attention to a few key categories:
- Operating expenses
- Payroll expenses
- Revenue streams
- Key recurring revenue losses
- Performance by product and services
While reviewing your P&L sheet and in order to better prepare for the coming year, it’s important to identify any seasonality of your business, any global, national, or local factors that had a direct impact on business, and consider any surplus.
With this as your baseline, it’s important to talk through your goals for 2023. Are you hoping to maintain, build up a surplus in the event of a loss of revenue, expand your focus, find new clients? Whatever the goal is, having a financial strategy that supports that (with contingency plans) can help destress in times of worry throughout the coming year.
You and your CPA can discuss how to budget and build a forecast for the coming year based on the particulars of you and your business.
Tip #3: Speak with Your Sales and Customer-Facing Teams
In building out your budget and forecasting for the coming year, your sales team and anyone in customer-facing roles can give your finance team crucial insight.
You may want to inquire:
- What are customers saying?
- Which products and services are getting the most interest? The least?
- Which products and services are getting harder to sell, or seeing less interest?
- What are the most common complaints?
- What are customers asking for that we are not offering?
- What are the key factors that prevent us from acquiring customers?
- Which products and services are priced too low? Too high? Using the wrong model?
This qualitative data, when combined with the quantitative data of your P&L Sheet, can often mean a more well-rounded budget and forecast for 2023.
Tip #4: Talent Acquisition Will Impact Your Budget More than in Recent Years
If you plan to expand your team in 2023, you may need to rework your budget for talent acquisition. With a longer, more arduous hiring process, the costs of finding, recruiting, hiring, and keeping quality employees has simply gone up in most industries across all levels of the process. To effectively budget for this, make sure that your salary, recruitment costs, and stipends (i.e. work from home expenses) are at parity or beyond the typical for your industry and location.
Tip #5: Approach Operating Expenses from a Hard Cost AND Workflow Lens
In exploring your business’ 2022 expenses and categories and building them into your budget for 2023, you may feel tempted to trim any seemingly unnecessary hard costs straight away.
However, budgeting for operating expenses means hard costs for software, office supplies, and payroll, but if there is a human component to your sales and marketing pipeline, expensive tools may create a more efficient workflow.
Additionally, if every member of your sales or marketing team is using a different process, and it’s possible to identify trends and methods that are working vs. not, you have an opportunity to build a more robust sales engine and increase revenue through more closed deals.
Get a clear picture of what your marketing, sales, product, HR, and yes, finance team has planned for the coming year, what they need to make that happen, and how much of your budget can be devoted to each of those processes.
Tip #6: Forecast with a Method That Reflects Your Business
There are many methods to forecasting sales and for a business overall, with bottom-up and top-down being commonly known, and additional philosophies used by CPAs across the country.
There are a few key things to keep in mind when determining how to forecast:
- Business Age
- Number of Employees
- Sales Team Size
- Accuracy and Quality of Your Data
- Seasonality of Your Business
This is when working with a CPA can really be a key benefit. Not only does a CPA understand multiple forecasting methods, they also have the benefit of years of experience working with multiple businesses gathering insight and data.
Working with a CPA means you’ll have a more sophisticated forecast that takes into account planning and preparation for a multitude of scenarios, again, based on your goals.
Tip #7: If You Are Concerned About Layoffs, Review Your Severance Policies
For some businesses, layoffs are an unfortunate reality. If you have concerns that your business will not be able to retain all full time and contract staff throughout the year, now is the time to review your severance package and policies and ensure your 2023 budget is built in a way that makes your company capable of honoring them.
Since severance is not required for layoffs, your company may not have a policy. But, that doesn’t prevent you from implementing one or from ensuring you can offering something to ease the pain for your team. Many severance packages will typically offer 1-2 weeks paid salary per year worked (though average job search time is currently 5-6 months, up from 3-6, depending on level and industry), continuation for insurance coverage, and other perks, and are often signed as part of an employee agreement. Meta, the parent company of Facebook, recently laid off 13% of its staff and offered 16 weeks of base pay.
Tip #8: Forecast Even if You Don’t Have Historical Data
Newer businesses, and even those whose first few years were marked by COVID may not feel they have enough historic data to go off of. Don’t worry—you can still create a meaningful forecast for the coming year.
Companies create forecasts without historical data all the time, whether it’s for new product launches, fundraising rounds, or new technology development.
Here are a few paths to forecasting without historic data:
- Examine current financial status
- Outline any recurring costs or income
- Identify what drives your sales and how those factors can be pushed
- Survey customers
- Evaluate advertising opportunities and predicted returns
- Run potential numbers and determine your benchmarks (i.e. minimum revenue to break even)
- Speak with a CPA with expertise in your industry of choice
Forecasting without historical data can be a bit of a challenge, but remember that every business that’s out there had a year one, so it is possible.
Tip #9: Forecast Based on Your Business
It’s typically newer businesses without the seasoned guidance of a CPA who make the all too common error of forecasting based on what the market and economy and is predicted to do. And, while considering the overall economy and its issues can be helpful (and should be considered when building your 2023 forecast), the forecast you build should focus on your business.
This means your forecast should be built on your services, your costs, your income and expenses, your sales process, your revenue streams, and your businesses strengths, potential growth options, and weaknesses.
The methodologies for building a business forecast can be incredibly complex, confusing, and time consuming, which is why it’s always best to build yours with the aid of a CPA if you can.
Tip #10: Plan So You Don’t Have to Predict
Six months, a year ago, a week ago, yesterday… analysts are always sharing predictions for what will happen in our immediate economic future. Of course, this is their job, and they often contradict each other, with some being correct, and some being completely off.
Taking the time to plan strategically ensures that when the unexpected arrives you are in a position to make the changes you need to. It also ensures you don’t find yourself at the end of 2023 realizing you paid for a software all year that nobody in your business needs to use, or realizing you’ve missed on opportunity to boost a particularly fruitful arm of your business.
We’re Wishing You Success in 2023!
Whether you are an Akif CPA client, a casual reader of this blog, a newsletter subscriber, or someone who just landed here, we want to wish you success in 2023!