Business Trends 2023: Financial Planning for a Dynamic Market

16 November 2022

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​Fall is upon us, and, for many companies, it is planning season. So, we like to take this opportunity each year to ask our CFOs about the trends they are seeing and how they recommend business leaders prepare for the coming year. We can always count on a spirited discussion because our CFOs bring perspectives from many industries. Our “business trends 2023” session did not disappoint.

Before I continue, I must remind you that financial planning is not something we recommend you do just once a year. Although this might be a time for developing tax strategies and setting budgets for 2023, ideally, this is just the start of an ongoing process. Therefore, we suggest you remain flexible and support your ability to make timely decisions by continuing to update your financial models and cash flow forecasts as the year unfolds.

Given that caveat, let us proceed.

Table of Contents

  1. The War in Ukraine is Causing a Ripple Effect on the Economy

  2. Environmental, Social, and Governance (ESG) Criteria are Here to Stay

  3. Continued Political Strife and Looming Elections

  4. Disruptive Technologies are Leading to New Business Opportunities

  5. An Increased Need for Creative Human Capital Strategies

  6. The Lasting Effects of the Pandemic

Trend 1: The War in Ukraine is Causing a Ripple Effect on the Economy

Russia’s invasion of Ukraine is, first and foremost, a humanitarian crisis, which makes it physically and psychologically difficult for any company with employees, suppliers, or partners conducting business in that area. It also disrupts global trade, putting financial and logistical pressure on large and small business owners. The crisis is causing shortages and driving prices up in an already stressed supply chain, and we don’t anticipate a resolution anytime soon. So, what can you do to prepare?

Take a People-First Approach

It probably goes without saying, but the most important thing is to ensure that any employees or partners are ok. For example, some of our clients hold contracts with labor or supply providers in Ukraine who have been experiencing distress. And although it introduces financial risk, we would coach you to avoid canceling those contracts. Instead, pick up the phone or schedule a Zoom call to have a real-time conversation about their well-being and create a backup plan.

Develop Strategies to Navigate Pricing, Currency, and Supply Chain Fluctuations

This war is serious and could potentially expand into other areas of Europe. The rise in energy prices is already affecting logistics and the cost of raw materials. And some of our clients are growing uncomfortable with exchange rate fluctuations.

We would encourage you to take steps to keep your margins up. Renegotiate contracts to lock in lower prices and ask your European suppliers to set prices in U.S. dollars. Also, if you haven’t already, diversify your importing and exporting needs. Consider onshoring, nearshoring, or moving contracts to other areas while delaying plans to move into developing markets that may be affected.

Offset Potential Losses by Harvesting Opportunities

Times of war are incredibly challenging, but for some, there may also be opportunities. For instance, the increase in defense spending is trickling down into the overall market that develops a wide array of related products and services. If you do business with companies in or near the defense industry or were considering a push into that market, this would be an excellent time to revisit your plans.

Trend 2: Environmental, Social, and Governance (ESG) Criteria are Here to Stay

Given the frequency of extreme weather events in the last few years and the heightened awareness of the inequities that exist in society, it should be no surprise that a reckoning is occurring. Businesses are experiencing pressure from all sides: the government, suppliers, partners, customers, and employees, all insisting that we do the “right” thing. And while there may be different opinions about what that means, the consensus among our CFOs was that companies must find a way to adapt. Either become part of the solution or risk falling behind.

Well, that is all fine and good, you might think, but what steps can you take in the coming year to account for this business trend? We’re glad you asked.

Take the Time to Strategize, Develop, and Tell Your ESG Story

ESG challenges affect businesses of every size, and no one expects you to tackle every burning issue in the next 12 months. But people are getting impatient. The younger generation, especially, is scrutinizing everything through this lens – what they study, how to vote, where they work, what to buy, etc. But they are not the only ones.

So, take a step back and look at the big picture. What steps have you taken so far, what can you reasonably accomplish in the next year, and what are your long-term goals? How can you take advantage of whatever is unique about your company to make headway in this area? What is standing in your way from moving forward on specific initiatives, and how can you prioritize changes that will genuinely move the needle?

Then document your plans, share your story on your website and packaging, and track your progress. Celebrate your accomplishments, admit to your mistakes, and explain why there are certain things you must focus on immediately while others will take more time and what you will do to make it all happen.

Seek Out Ways to Create a Win-Win

There are real financial advantages to finding ESG-friendly ways to do business. For example, in certain areas, there are tax benefits for companies that recycle or for those that reduce their energy or water consumption. There are also perks for developing ethical sourcing plans that favor women or minority-owned businesses. Leaning into opportunities of this nature can help you reduce your tax burden and offset inflated labor or raw material costs making it easier to keep prices stable and your customers happy.

Meanwhile, President Biden signed an act into law in the United States that will funnel billions of dollars toward climate-related initiatives. That presents a tremendous opportunity for any company selling products or services in this market. Furthermore, since you can now count on the longevity of these businesses, additional cost savings (and protection against inflation) could be available if you lock in your rates with long-term contracts.


Trend 3: Continued Political Strife and Looming Elections

Person placing a ballet in a ballet box to show voting.

In the U.S., mid-term elections are coming, with the 2024 presidential election kicking into gear soon thereafter, so tensions are high, and everyone feels the effects. As a business owner, you must pay attention to how changes in the political environment can affect your workforce, their cohesiveness, and your bottom line. For example, here are a few things we have been discussing with our clients:

Shifts in Policy Can Affect Your Profitability

Elections matter. If we see a red wave in November, we may experience gridlock for the next few years, which could stem the flow of money. We also see heavy-handed policy shifts from specific states that could affect your margins.

In California, for example, Governor Gavin Newsom just signed a bill paving the way to a $22/hour minimum wage for many fast-food workers. Although this is somewhat understandable given the high cost of living in the state, companies in that market might need to adjust.

Know the Costs and Benefits of Protectionism

We mentioned imports earlier concerning the war in Ukraine, but domestic policy plays a part here too. If you count on equipment imported from abroad, check that you understand the tariffs and how long it will take to get things into the country, then build a buffer into any plans.

On the labor front, we have noticed some clients moving away from hiring people in India or Latin America in favor of talent in less-expensive states. They realize labor costs will rise but expect to gain efficiencies by eliminating time zone issues.

There is also a play for those wishing to start a business. For example, certain states award grants to those willing to establish operations within their borders.

Trend 4: Disruptive Technologies are Leading to New Business Opportunities

Technologies like artificial intelligence (AI) and machine learning, which were previously flawed and cost-prohibitive, especially for small and medium-sized companies, are becoming more reliable and affordable. That means we all have access to information and capabilities that we simply did not have before. Now is the time to take advantage of this opportunity while remaining mindful of the new rules and regulations protecting consumer privacy. Our CFOs were excited about many developments, but we noticed that they congealed into a few key recommendations:

Harness Efficiencies to Create Space in Your Budget

We can now implement technologies that provide deep insight into our financial and operational data and use that information to spot problems and drive efficiencies. Therefore, when developing budgets, you must always ask whether it makes sense to hire someone or if you could do more with less staff through business applications and tools.

For instance, in the finance department, accounting solutions have become sophisticated and capable of refreshing data and producing reports that previously required staff. Of course, this doesn’t mean you don’t need employees, but you might need fewer people if you automate the drudgery, allowing your team to focus on the more strategic, exciting work.

Use Data to Take Advantage of Niche or Localized Markets

Person interacting with technology to illustrate disruptive technology like artificial intelligence.

The move to online shopping and the boom in subscription-based businesses is generating a ton of data and turning traditional marketing on its head. So, this recommendation is two-fold.

First, create a consistent customer experience across all platforms (desktop, tablet, and mobile), and enable cross-device, cross-platform tracking to get a good handle on your data analytics. That may require some finagling, of course. But it will provide invaluable insight into how customers find and interact with your business so you can prioritize. For instance, it can help you compare the relative impact of spending on social media ads, influencers, partners, etc.

Then, look for opportunities to tap into niche markets. We now have data that allows us to segment markets better than before. For example, programmatic advertising uses data to target your ad spend on the most profitable opportunities – targeting the right people with the right message, wherever they are most likely to be.

Some companies even use data to develop customized products for niche markets. In the insurance industry, for instance, this is a game changer because it allows them to offer suitable products directly to consumers, bypassing the brokers.

Trend 5: An Increased Need for Creative Human Capital Strategies

Last year, in our business trends for 2022 article, we listed hiring as a massive challenge for businesses, and we expect this to continue throughout 2023. Unemployment rates remain low, and even if we head into a recession, the search for top talent will be competitive for some time. Couple that with inflation, the subsequent rise in wages, and an emerging workforce that favors unionizing and pushing back against unsatisfying working conditions, and the need for a human capital strategy becomes crucial. So, how can you adjust?

Develop Plans to Address the Entire Talent Life Cycle

Employee attrition is costly. Invest in keeping and motivating the employees you have today by thinking through every step in the talent life cycle. That includes acquisition, performance management, learning and development, succession planning, leadership development, and rewards and compensation. Identify those areas where you can improve, then prioritize.

For example, when considering your acquisition strategy, remember that you don’t always have to hire full-time employees – part-time options are a completely acceptable (and cost-effective) way to augment your workforce at certain stages of growth.

Download our “Building a Winning Team” guide to see how this could work for your finance and accounting department. Of course, the approach applies to executives as well. You could even hire a Fractional Chief Human Resources Officer to build your strategy for you.

Focus on Your Culture

Every workplace has a culture, and while you can allow it to develop naturally in the early days, someone needs to take charge at some point. If you desire a diverse and inclusive work environment that rewards results but doesn’t lead to burnout, that’s great. But you need to show your employees you mean it by defining what that will look like, taking stock of where you are today, and communicating what you will do to tie up loose ends.

You could even build your values into your compensation packages. Examples include flexible working hours, career development, perks for employees who bike to work (reducing your carbon footprint), wellness incentives, and a commitment to promote from within whenever possible. Such incentives clarify what you stand for, sweeten the pot for prospective employees, and allow you to tap into a broader talent pool.

Then do not forget to hold yourself accountable. For example, send a newsletter to employees sharing your progress and reminding them of important dates, policies, or opportunities.

Trend 6: The Lasting Effects of the Pandemic

People working in an office to illustrate the ongoing covid 19 business trend.

The covid-19 pandemic may no longer be an emergency, but we seem to be settling into a new normal, including some wide-range shifts in how we do business. And many companies are still reeling from changes in employee expectations. For example, how can you adjust your financial plans to accommodate a workforce that continues to expect remote working options? And given the increased inflation rates and subsequent rise in interest rates, how will that affect your ability to secure the funds you need to grow? Here’s what our CFOs had to say:

Carefully Consider Your Office Space

There is a lot of uncertainty among our clients regarding employee workspace needs. It is challenging to determine how much real estate is required and whether it is better to encourage employees to work remotely or return to the office. Some companies are forcing the issue, mainly due to their leases or because they feel they must “lay down the law,” but it is not going over well and can cost you in other ways.

Medium and small business trends seem to favor a hybrid model if only to remain competitive in a tight labor market. For instance, maybe you can’t compete with the salaries and benefits of large organizations, but you can offer remote work models and generous vacation policies. That could lead to higher employee satisfaction, lower attrition costs, less spending on office space, and a better ESG story. But it is essential to listen to how employees think and feel – if your culture is taking a hit and employees are disengaged, you must be willing to shift.

Prepare for the Rising Cost of Capital

Before and during the early part of the pandemic, interest rates were historically low. But, when the supply chain became congested, kicking off inflation, the feds had no choice but to raise them. Until we see an impact of those changes, we expect this trend to continue. That means businesses must review their capital needs and be mindful of their receivables (i.e., if customers are not paying on time, they are essentially treating you like a low-interest bank).

There is still plenty of funding to be found, but if you plan to pursue debt financing, you must factor the rising costs into your plans. And on the equity financing side, venture capitalists are weary of companies that chase top-line growth and earnings through capital. Instead, they favor businesses showing a clear path to profitability that accounts for the abovementioned trends.

The Bottom Line: Business Trends 2023

Business trends in 2022 were similar in tone to those we are seeing today, and even though the war in Ukraine has added a new twist, we seem to be settling into some of the changes that occurred over the last few years. The only thing we know for sure is that the new year will bring some surprises. Nevertheless, if you commit to reviewing and updating your financial plans periodically, we are confident that 2023 will be a good year.