It seems like since 2020, no year in business has been conventional or followed the norm. Recession is the talk of the town since the start of this year. In a survey conducted by CNBC, 68 percent of the CFOs think a recession will in occur, and though it’s all the buzz in the news, no one can seem to answer whether there will be a recession. Will 2023 be a recession year? Nobody can say for sure.
Consumers who are seeing price increases at the grocery store and gas pumps claim that the recession is already underway. Layoffs are hitting, but mostly in the tech and unicorn sector. With such a multi-faceted economy, there are no global definites for how 2023 can shake out, but what our years in business and managing accounting for our clients has taught is that there are two key things every business should do when facing a new year—budget and forecast.
By using these suggestions you can ensure that your company stands in a position to face the challenges that 2023 will be offering, you’ll strengthen it against a potential recession and any others that may come after, and can even set yourself up for growth.
Ways to Prepare Your Business For 2023
1. Identify Your Goals for 2023
Knowing your business goals for the coming year will be critical for you and your CPA to plan and budget for 2023. If there are areas in which you want to grow or products and services you want to close down, these decisions will all impact your cashflow, your growth potential, and how you spend.
It’s important to be strategic when building and maintaining your business, and knowing what you’d like to accomplish in the coming year will help ensure your business stays on track.
2. Create a Financial Forecast
Now is an excellent time to consider putting financial forecasting into practice because it is a useful tool that can aid business owners in understanding and planning their future.
For the most benefit, make sure that this forecast is accurate. Use this to identify any areas where additional working capital could be useful.
The following are some crucial points that firms should bear in mind while making projections and attempting to comprehend their perspective for the fiscal year 2023:
- Forecasting models must be flexible and built around the important factors that affect the performance or profitability of the company.
- Once a flexible model has been created, it is simple to spend time considering various “what-if” scenarios to aid in contingency planning and better predict possible financial consequences.
- Cash flow is still extremely important to the business. Understanding the expected timing and size of such requirements with the use of cash flow forecasting will enable management to determine where these resources will come from.
- Regular evaluations and revisions of budgets and projections are necessary. It is best to plan this as part of the management reporting process on a monthly or quarterly basis. The company will benefit from staying on top of things.
When putting together a forecast, consider how much business you are planning to take on, revenue predictions, advertising and marketing costs, and what areas you expect to grow or contract in the coming year.
3. Build a Healthy, Conservative Budget
Since 2023 seems to be another unpredictable year, it’s important to build a budget that is more on the conservative side. However, remember that operating a business is a long-term venture, and that it’s perfectly normal to have years of high revenue and some of lower revenues. Consider how your budget and forecast can work together to help you achieve your goals, and what insights you can clean from previous years.
Your budget should include all potential expenses, and some of our clients prefer to budget for unexpected or unplanned expenses with a monthly excess for projects and opportunities that come up throughout the year.
Your budget should include items like…
- Operating expenses
- Advertising and Marketing expenses
- Insurance, Health Care, etc.
- Conferences and Continuing Education
- Product and Inventory
- and more!
If you’ve never created a budget for your business, now is always a great time to start! You can always work with a CPA to build your first budget and ensure you’re not missing anything.
4. Consider Your Payment and Cashflow Options
If your money in/money out is a cause for concern, consider payment and cashflow options. Some service-based businesses may consider asking for a larger percentage up-front, or update payment deadlines, or increase late fees. Product-based businesses may prioritize custom ordering, or choose to stock up on additional inventory to account for shipping delays.
If you’re looking to leverage more cash for your business, there are loan and accounting options like invoice financing, grants, business loans, and other up-front options. We recommend speaking with a qualified CPA AND a financial planner before taking on any debt for your businesses.
5. Make an Effective Tax Strategy
Just like in every other area of your organization, you need to adopt a tax strategy. With the aid of an efficient tax plan, you may change the perception of taxes from being a major burden to a major asset. Part of your budgeting and forecasting should indicate which tax bracket your business will fall into and what your potential tax liability is. This can also offer opportunity to rework your expense plan to lower your tax burden.
To optimize and protect your tax benefits in your day-to-day operations, you must be aware of how to classify your current and new companies for maximum tax benefits. After all, you may reinvest every dollar you save on taxes into your company, your real estate holdings, your stock portfolio, or other investments. This goes beyond correctly deducting and keeping track of business and investment expenditures.
A firm tax strategy can be the difference in thousands of dollars paid and saved, and sometimes even more. Since every business is different, it’s important to get a one-on-one perspective that is clear and specific to your business when it comes to planning for taxes. General advice will only get you so far and can sometimes be misleading, as a lot of the key tax savings are based on industry.
5. Be Prepared for a Potential Recession
There are several steps you can do to get your company ready for 2023. Business owners in recessionary times must find a fine balance between pessimism and optimism, making sure expectations are reasonable while yet holding out hope for growth.
Smart business owners understand that a potential recession period gives an opportunity and that it’s time to work more ON your business than IN it.
The shortcomings of a company might be hidden when circumstances are good, but when situations get rough, both the strengths and weaknesses will become apparent.
When poor financial management practices carry over into economically challenging times, issues arise. Make sure your accountant recognizes these flaws and assists you in changing the business’s strategic direction.
Additionally, they shall also use their expertise and business knowledge to identify any early warning signals and then collaborate with you to establish a moving forward strategy.
6. Work with a CPA
Participate in the decision-making process with your CPA. Particularly, a CPA who understands your business and specializes in budgeting and forecasting will be a more helpful to you than one who’s just focused on taxes.
CPAs with experience in business consulting have the special capacity to support a strategic financial assessment of your company. Their viewpoint will emphasize expansion with a focus on the numbers, but also taking into account the bigger picture of all financial risks, running costs, and other factors.
Your business plan will be stronger and more practical with the assistance of a CPA, and it will aid in securing the financing you’ll probably need in the future.
The biggest thing to remember is that there are a lot of contrasting reports from analysts and business leaders about what to expect in 2023, and much of it depends on industry, business classification, individual goals, and forces outside our control. Plus, remember… negative articles on the internet tend to circulate more rapidly and frequently than positive ones. Fear sells!
Your biggest protection against anything unexpected in 2023 is a firm budget and forecast along with a comprehensive tax plan and a full understanding of your business goals.
While these are standard practices to follow to deal with the situation, it does NOT consider the individual financial circumstances and particulars of your company. You should definitely consider talking with a CPA to understand the contextual problems, so you can work in the right direction that ensures saving your time and money.