How to Prepare Your Business for Success in 2023 — Financial Forecasting Insights from Founder and Fractional CFO, Dan DeGolier
Proper financial forecasting and keeping diligent business records are just two of many tips to ensure 2023 is your biggest year yet.
Year-end planning is imperative for all businesses, especially as they navigate a changing and uncertain business environment. Over the last six months, rising inflation and a likely recession has created fear and panic for some companies as they look to 2023. While business leaders have little control over macroeconomic cycles, they do have the ability to truly understand the specific components of their business, adjust and be flexible in their goals and spending, and navigate uncertainty with greater confidence through proper financial forecasting.
Ascent CFO Solutions’ Founder and Fractional CFO Dan DeGolier shares his insights on how businesses can take advantage of year-end planning and financial forecasting, how to handle financial uncertainty and ways to elevate your business for greater success in 2023.
What is Ascent CFO Solutions Seeing Now as We End the Year?
CEOs are still reaching out to Ascent CFO for guidance and assistance with Fractional CFO needs to help them grow, but there is a level of uncertainty in the business environment now that wasn’t present a year ago. With the threat of recession looming, increased uncertainty has led to a decrease in revenue growth and fundraising valuations, and some deals taking longer to close.
While this could sound worrisome for many, the uncertainty has pushed leaders to look deeper into their businesses. They are digging into their company’s current financial standings, relying on us to help them set up robust financial forecasting, and using all of this knowledge to inform their 2023 goals.
What Can CEOs and Founders Do to Address Their Concerns About Financial Uncertainty in the New Year?
First, understand that this is not the time to panic. It’s the time to be in tune with your business and how it functions. Rather than give into the fear, CEOs and founders should take the time to finetune their visibility into their company’s cash flow for the upcoming quarters. Companies need to be aware of how fast they are burning cash so they can understand how quickly they can grow.
Budgeting vs. Financial Forecasting — When Do You Need One or the Other?
The annual budget is a static forecast at a particular point in time, with management and board members signing off on it annually. The rolling forecast is a month-by-month view of likely scenarios of your cash flow, and it’s frequently updated with actual financial results as the business changes.
I’ve always considered a rolling financial forecast to be one of the most valuable tools available to management. If revenue starts to go in an undesirable direction, the rolling forecast can offer scenarios on where to cut costs, pause growth, and save cash.
How Can Companies Effectively Preserve Cash?
The two primary areas where companies can make mid-year adjustments are headcount and discretionary spending in areas such as marketing. You can also freeze hiring and salary increases or let employees go to decrease your monthly burn rate. If you’re a capital-intensive company, like a manufacturer, then capital expenditures is another lever you can pull. Finally, see if you can renegotiate your real estate lease(s) to get a price break. The pandemic showed us a perfect example of this in the real estate market as individuals advocated for and obtained lease cuts.
How Can Companies Remain Agile in Their Financial Operations?
Agility in finance is about having visibility into your business so you know when to act. It’s about managing your balance sheet and staying on top of bank debt or bank covenants if you have them. If you think you might miss a bank covenant, alert the bank in advance. The key is don’t surprise your board, investors, or bankers! The better your financial forecasting, the better visibility in your future balance sheet, which will help you ask forgiveness before you’ve already fallen into default.
What Opportunities Can Businesses Pursue in 2023?
The recent decline in real estate costs could present an opportunity to buy a building for your company. There may be circumstances to acquire new businesses as competitors may be more motivated to sell. It may also be a good time to accelerate buying equipment because vendors might offer discounts.
I urge any CEO or company leader to pay attention to the numbers to really know your business. Have a plan B and be ready for a slowdown, so if you need to cut costs, you’re ready to pivot. Pay attention to your sales pipeline and be sure to have good visibility into your future cash flows via a robust rolling forecast.
Be really in tune with your business. Know when to pump the brakes or push forward into new opportunities in 2023.
With nearly 30 years of experience, Dan Degolier has operated as a CPA with a global accounting firm, full-time CFO with multiple private companies and now as a Fractional CFO and Founder. His Fractional CFO experience includes partnering with companies in many industries including Technology & SaaS, manufacturing, e-commerce, professional services, financial services, construction, and real estate.