As we reach the end of another year, business owners turn their attention to their goals and objectives for the following year. In this article we will review the challenges ahead and some of the issues businesses will face and need to fully consider in their business planning for 2023 (and beyond).

Business planning for 2023Next year, businesses continue to face an unprecedented set of challenges. Globally, economies are highly unsettled, at home we face the significant challenges presented by high inflation rates and a looming economic recession. So how should business owners approach business planning in 2023?

The purpose of this post isn’t to teach you how to write a business plan. Its intention is to help you look at the implications of what has happened over the past few years and some issues you might need to consider in more detail as you set out your plan for 2023.

With that in mind, let’s recap the events of the past year or two, as this has a fundamental impact on the scope of planning and the considerations that need to be made.

What are the principal events that have occurred recently that will likely shape your business in 2023?

Over past year we have and continue to experience the impact of five major events:

Covid 19

Covid has had and continues to have an impact on not just business but also on the attitudes of employees and consumer trends. Whether you run a business or not, you were affected in some way, and for many, this changed their outlook on life. This can’t be underestimated when considering how your business may have to change in the next year.

Covid also shut down or severely impacted many global supply chains, especially with those in the east.

Russia’s invasion of Ukraine

Just like Covid, this was somewhat of a surprise event. Its main impact has been on energy markets. As energy underpins just about everything we do in life, it has affected everyone, from everyday fuel costs, home heating bills, office energy bills, manufacturing, transportation, the list goes on. As for many businesses, energy is a basic cost, it impacts the bottom line. In a bid to maintain profit margins, suppliers and manufacturers have had to increase prices. Along with this and the rise in energy prices, we have seen inflation rise to near historic levels, leaving many homes and businesses alike wondering how they can simply stay afloat.

So, simply put, the impact of Russia’s invasion of Ukraine has been on inflation.

Liz Trust’s disastrous budget

In an attempt to win the hearts and minds of her party and the people, her actions which included tax cuts and new spending had the opposite effect. A crisis in bond markets and lack of global confidence sent the pound falling against the Dollar and Euro, pushing the UK towards a recession.

This has made importing raw materials more expensive, adding to the cost pressures businesses face.

Inflation & industrial action

Although we have already mentioned inflation as an outcome of Russia’s actions, it stands as an event on its own. Inflation hits everyone’s pockets. This has led to a wave of industrial action in recent months, particularly transportation, as workers seek to balance income and costs.

We all need to get around to either go to work or do business, and so transport strikes hit the hardest. Covid, has in many respects, toughened our ability to cope with this issue, largely because businesses had to adapt to new working practices through the lockdowns. Working from home is now widely practiced and so many companies have just learned to adjust to this.

However, many businesses rely on foot traffic. Retail, hospitality, travel and many service industries rely on people being able to get to them. So while it’s easy to say “we’ll just work from home”, the pubs, bars, cafes, restaurants, hotels, and shops in the major cities that benefit from the large influx of office workers, will suffer. And, given the pressures they are already under, many may still fail.

Brexit

We’ll not say much on this much maligned subject, but needless to say, while some insist ‘Brexit is done’, it really isn’t. Many businesses that regularly trade with the EU are still suffering from the impact of legal changes and the heaps of new administration (or lack of) required to continue as ‘normal’.

Furthermore, for some businesses, it has caused a crisis in staffing, because of a heavy reliance on foreign workers.

When one takes a step back and considers the world as it was just a few years ago, one would be forgiven for thinking one had stepped into an alternate reality, where just about every conceivable barrier to business had been thrown into the ring.

What is the economic outlook for 2023

Faced with the challenges above, we need to consider the economic environment our businesses will have to cope with in 2023. Several government and government aligned organisations and independent think tanks have commented on the outlook for 2023, here are some of the soundbites coming out of the Government, the Office for Budget Responsibility (OBR), the CBI and the Bank of England.

  • With the OBR forecasting a contraction of 1.4% over 2023, the UK is expected to be the first major economy to enter recession.
  • Recently The Bank of England warned that the U.K. is now headed for its longest recession since records began a century ago.
  • It’s expected that Britain’s economy will shrink 0.4% next year as inflation remains high and companies put investment on hold.
  • Unemployment is projected to peak at 5.0% in late 2023 and early 2024, up from 3.6% currently.
  • In October, British inflation hit a 41-year high of 11.1%, sharply squeezing consumer demand. The CBI predicts it will be slow to fall, averaging 6.7% next year and 2.9% in 2024.
  • The U.K.’s hospitality sector is in trouble, again. More than a third (35%) of members say they are at risk of closure early next year due to higher costs, soaring energy bills and weakened consumer spending.

Again, it’s not a pretty picture and so any company reviewing their business plan has a lot to take into account, especially the cost of borrowing and a general increase in costs across the board.

Review your business performance for 2022

Before you can make any planning considerations for 2023, you must review your business’s performance for 2022. There are a number of fundamental aspects of business planning that need to be covered whatever the challenges faced. These include:

  1. Performance of the company to the current plan.
  2. Internal challenges that affected your ability to meet the plan.
  3. External challenges that affect your ability to meet the plan.

Performance

  • How did the business perform in relation to the plan for 2022?
  • Did you make a profit?
  • Did you find you had adequate cash to fund day to day operations?
  • Did any operational issues arise that were not planned for and how might these be considered in the future?
  • Regardless of whether you made a profit or not, did your sales receipts perform according to plan? If they didn’t, what exceptions contributed to this?
  • If you made a loss, why? Did competitive price pressures result in price reductions? Was the cost of sales higher than expected, and if so, is this a trend that’s set to continue?
  • If sales didn’t perform as expected, what reasons do you attribute to this, such as ‘lack of demand, competitive alternatives, failing brand awareness or poor perceptions, or perhaps a market contraction?
  • Have your accounts receivables increased excessively and did this adversely affect your cash flow?
  • Did you take advantage of any tax advantages your business may have been entitled to?

Internal Factors

  • How did your workforce perform?
  • Were there any increases in sick leave, pay demands, etc., that increased your overall costs?
  • Are you aware of ongoing inefficiencies that contribute to fluctuations in operations costs, such as legacy systems, poor communication or lack of digital enablement?
  • How did your marketing and PR campaigns perform? How might they be improved in the future?
  • Did you have to make use of any government or other loans and are the repayments being met?

External Factors

  • Did your supply chain perform as expected? I.e. costs held, no disruptions in raw materials or supplies that may have affected product deliveries and sales income.
  • Has your market audience’s expectations changed significantly in terms of the products they expect or the messages that support them.
  • Have your competitors adjusted their positioning recently in a way that may warrant a response?
  • How is your firm responding to the growing expectations from consumers for sustainably produced products and an environmentally friendly organisation?

Every business is different, so one must pick and choose the factors that apply to your business, but for the most part the points above are a checklist most businesses can follow.

It’s a good idea to actually sit and write out answers to these, rather than make a mental check of each, as the answers to these questions are fundamental to modifying or even creating a new plan for 2023.

Setting out the plan for 2023

In this part of the article, we’ll look at some of the key areas of your plan and how the above issues may have an impact.

Scope – take nothing for granted and make no assumptions – the world has changed

While doom and gloom has run riot in the news recently, such downturns may yield opportunities for some. Companies that have acted prudently over the past few years and weathered the storm, may be able to take advantage of those that didn’t.

Competitors, for instance, may have gone out of business. Some however, may be ripe for acquisition, as owners may have decided they have had enough. We mentioned earlier that Covid made people reflect quite harshly on their own individual realities and quality of life. This has led to more than a few walking away from their businesses and looking for a complete change. These businesses are still out there and owners are going through similar thoughts in the face of inflationary issues and significantly higher costs.

One of the first tasks to perform, which may be out of the ordinary for the usual year end planning, is to conduct a new audit of your business. For instance:

  • How have the events of the past year or so affected your target market?
  • Are your target customers still looking for the same products and services or have their attitudes and expectations changed in some way that may mean your products and services are not as enticing as they were, or simply don’t hit the mark any more?
  • Have price points changed?
  • Which of your main competitors are still there? How have they been affected? Have their recent actions exposed any changes in their strategy you should take note of?
  • Have any new competitors arrived on the scene? Often, dramatic changes in markets see new competitors entering the fray, taking advantage of more mature companies’ inability to change quickly enough. Sometimes, these competitors introduce disruptive technologies, products or services, sensing that consumer attitudes and needs have shifted.
  • Attention to customer care has featured highly since Covid and it’s a key area for businesses to differentiate. How does your customer care and support services stand up to more critical reviews by your intended customer base?
  • How are your systems and processes holding up? Are you burdened by legacy systems that lack integration with other, newer, company systems? How could digitally transforming your company help improve efficiency and ultimately increase profits, or, in the face of higher cost pressures, maintain your profit margins?

Overall goals and objectives for 2023

In light of the changes we have highlighted and those that you may have experienced, think about the goals you set in the next year and how you may logically expand upon them with the knowledge and experience you have now.

You may have an opportunity to expand far beyond your original plan’s expectations, simply because the business landscape you are in may have changed significantly too. It’s rather like looking back at stock market drops; one often laments upon not buying certain stocks when they were at historic lows. Hindsight is a wonderful thing, but today, you really might have an opportunity to grow in ways you didn’t expect. Make sure you seriously consider these as they may not present themselves again.

Conversely, you may realise that the time now is for consolidation and improving the operation you have, rather than any dramatic growth. You may want to consider your business’s progress towards digital transformation and the significant improvements in productivity, performance and security it can offer.

In short, ‘don’t be normal’, because there is no normal, at least for the foreseeable future.

Creating the business plan

Your business plan will comprise several sections, including the financial plan, operational plan, and the sales and marketing plan. Each of these will be unique to your business, shaped by the industry you operate within, the types of products and services you offer, and your approach to competition and pricing, etc. Our concern here relates again to the larger picture, the factors that help you shape your plan. We believe there are some key areas you should consider when drawing up the new plan for 2023. These relate to:

  1. The economic environment
  2. Rapidly accelerating business technologies
  3. Competition for resources
  4. Customer expectations
  5. Sustainability

The economic environment

Answering the question outlined earlier in this article will help you gauge your operational capabilities in the face of the challenges we believe you will face. The critical point here is to ensure you fully appreciate how your business has been affected by events to date and its ability to perform in the face of what economic experts believe will occur during 2023.

For many businesses the chief concerns in times of economic turmoil lie with costs, availability and cash flow:

  • The costs associated with borrowing money and finance availability
  • Costs and availability of supplies
  • Cost and availability of labour
  • The ability for your client base to pay on time to fund cash flow

Ultimately, you’ll come to a determination that will lead you to either grow aggressively, because:

  • You’ve maintained your financial strength and are able to exploit gaps left by competitors who may have suffered.
  • Found new niches that have opened because your customer base has evolved over the past few years as they have had to adapt.

Or, you may decide to manage growth more conservatively, by:

  • Consolidating your market position.
  • Refining and improving your systems and processes to help improve margins and operational effectiveness.
  • Focusing on core product and service areas to increase your competitive strength.
  • Improving your customer service performance to retain existing and attract more clients.

Of course, for some, a third option is that you may decide that enough is enough and look to exit from the business, which is beyond the scope of this article.

Rapidly accelerating business technologies

The pace of change in the world of technology has been breathtaking in recent years. Many business owners are still struggling to get their heads around the implications of new payment technologies such as blockchain (eCurrencies such as BitCoin) and how artificial intelligence could apply to their systems and processes.

Digital transformation has been a key buzz word for business for quite a few years now, but has accelerated in the past two years, to some extent because of the changes brought about by Covid and the need for remote working, but also because of the surge in online fraud and general criminality associated with business. A business that has successfully integrated its core systems and processes with the remote endpoints of its work forces, and supply chain, is far more resilient to these external forces.

Read our article on: How digital enablement can help reduce cyber crime and fraud

All businesses, big or small, need to embrace digital transformation, have a core digital strategy, and the ensuing digital enablement of key services and processes. The impact of doing this cannot be overstated as it will likely provide the basis for a more competitive business in the coming years.

Competition for resources

Employee attitudes have changed over the past few years. Again, much can be attributed to the trials and tribulations we have all experienced over the Covid years. people’s attitude to the work / life balance has hardened too. It’s made people think about how they want to work and who they want to work for.

It is becoming much harder to attract and retain good talent. Brexit has added its own set of complications where foreign talent is concerned, but needless to say, the process of hiring the right people for the right job is not as it was. You’ll likely find your business competing for talent in areas other than how much you pay, for instance, how much flexibility you’ll allow employees to manage their work/life balance, the facilities you offer them and any benefits associated with the job package.

Customer expectations

In a digital world, instant gratification becomes a de-facto standard. Consumers are now very used to ordering and receiving goods quickly, sometimes even on the same day. Within this world, customer service is not a by-word, it’s a way of life. Many businesses caught out by Covid survived because they reacted quickly to the changes and quickly evolving needs of their clients. Part of this was in having a customer relationship led strategy.

Another rapidly evolving trend is the need to offer immersive and experiential buying processes. The digital world has evolved into a world of augmented reality and virtual reality, that enables customers to experience your brand and products virtually.

Even walk-in stores are not immune to this. Customers want to have memorable and immersive in-store experiences. Here too, augmented or ‘extended’ reality experiences can be incorporated into the in-store experience.

Sustainability

No matter what your buying experience is, whether it’s a basic consumable or booking a holiday, the issue of sustainability and eco-friendly businesses is ever present.

Your business plan absolutely must have a section that outlines your approach to operating a sustainable business; from how you buy your energy, your purchasing processes, the attitude in your business and the expectation on your supply chain.

It’s no good ‘greenwashing’ – the act of talking the talk, but not walking the walk. You must show your customers that you are sincere in your approach and that sustainability is a core tenet of your business plan and corporate philosophy.

Conclusions

It is without doubt that 2023 and probably a few years more will present considerable challenges to business, especially small to medium sized businesses(SMEs). However, by making wise planning decisions based on a sound understanding of the specific issues your business will face, you may find that a surprising number of opportunities reveal themselves.

The main point of this article was to help SME business owners to think in broader terms, specifically because the range of issues facing the world’s economies is so broad.

Years ago, there was a phrase used to captivate thinking around global businesses: “Think global, act local”. This can be applied within the context of issues faced today. Think about the factors affecting your business globally – but not global in a world context, think about the ‘macro’ issues that affect your business – such as customer attitudes, evolving technologies, changing employee behaviour, higher costs affecting supply and demand and sustainability, rather than just the day-to-day uses of running your business. Then consider how these can be adopted at a local level, i.e. within your business and its day-to-day operations.

Those businesses that are creative and flexible enough, typically in thinking and will power, will likely be those that build a successful, competitive and sustainable business long after 2023.

TaxAgility growth advisors

While TaxAgility is a well known and recognised firm of chartered accountants operating in the South London (Putney, Richmond, Wimbledon, Fulham) and Surrey areas, we are intimately involved in the running of client’s businesses. As such we are uniquely positioned to assist businesses like yours meet the growth challenges faced over the coming years.

For TaxAgility, it’s not enough to simply assist clients with their day-to-day accounting requirement, we want to help our client’s businesses grow and succeed.

If you feel your business needs assistance in coping with the challenges outlined in this article, do not hesitate to call and talk to one of our advisors. Call 020 8108 0090 today and find out how we can help.