Top tips for businesses in 2023
As we plan for the year ahead, it’s often a valuable opportunity for business leaders to reflect on their strategy. This will help them achieve their goals in the face of a range of external influencers that may have a significant impact on various aspects of their organisation - from people and processes to products and pricing. 2023 will be a particularly fascinating year - we have a General Election in October, there have already been several significant weather events, there is increasing talk of a potential economic recession and we continue to see global economic and geopolitical uncertainty having a very real impact on Kiwi businesses.
Despite this, there are also many reasons to be optimistic. Organisations that are acting on sustainability and putting their people first are beginning to carve out a real point of difference in the market – with some winning competitive advantage as a result. Meanwhile, supply chain and climate concerns mean there has been a stronger push for consumers to purchase locally – a trend that NZ businesses can capitalise on. In the technology space, more and more organisations are moving their systems and processes to the cloud and are finding significant efficiencies as a result.
We spoke to our 12 newly appointed BDO Partners to find out what their top tips are for businesses as they navigate 2023.
Find your risks – and your opportunities
The only way to protect yourself from uncertainty is to build resilience into your organisation. Developing a strong risk management approach that enables you to stay up to date with changes as they happen, understand what the impact is to your business, and know exactly what levers you can pull to lessen those impacts, is really the only way to move through 2023 with confidence. Having a risk register in place that details and ranks your key risks – in terms of impact, but also your strategic priorities and appetite for risk – and maps your response to lessen those risks, is essential.
Strong risk management is also about gaining comfort on the steps you’ve taken to mitigate your risks – are your controls well-designed and are they operating as you expect? This sort of visibility is critical, particularly around the board table.
It's also important not just to see risk in negative terms. While there is a lot of geopolitical and economic uncertainty, some risks, like those around ESG and sustainability, also present opportunities for businesses willing to move early and win competitive advantage as a result.
Automate and integrate
The last two years drove massive cloud adoption across New Zealand businesses, especially in their accounting and finance functions as the country moved to more remote and hybrid ways of working. I believe 2023 will see automation and integration between business systems become even more important to ensure businesses are operating at their most efficient. Many organisations are still using paper-based or non-automated systems for key processes such as accounts payable and inventory management. With the business landscape becoming ever more complex, 2023 really is the year to move these processes into the cloud so that business leaders can spend more time on strategy and other key areas of their organisation.
My top tip for businesses moving through 2023 is to embrace automation and technology – there’s a significant labour shortage in New Zealand and it’s not going to away any time soon. One of the ways I’ve been working with my clients to circumvent this issue is through embracing technology and working smarter. I have a manufacturing client that was hit with labour shortages in March last year. In response, they bought a new manufacturing machine that entirely automates a particular process that used to require six people at various stages. The machine was only commissioned in October last year and they’ve already increased their year-on-year revenue by 22%. Combining automation with a focus on staff retention, particularly for your best talent, is the best way to ensure you can still operate effectively in 2023.
Put your people first
With increasing costs, supply chain issues and staff shortages set to continue into 2023, a focus on people has never been more important. The last thing a business wants is for staff shortages to impact service delivery. Organisations frequently talk about their focus on people, but what does that really mean in practice? Truly looking after your people requires a fundamental shift for businesses and means measuring your success beyond just financials. Organisations that do this will be in the best position to succeed in 2023 and beyond. Take care of the people and the profits will come.
As we move through 2023, remuneration has become a central focus for businesses looking to retain key employees. However it’s important for businesses to consider alternative methods, rather than simply focusing on the dollar value. This could be creating clear career pathways, succession planning, investing the time and effort to train and support and building a vibrant team culture.
We are seeing a talent stretch within audit too, and there are a couple of new standards coming out that are going to bring audit quality and efficiency into even greater focus. I’m looking forward to the greater efficiencies that these standards will bring, meaning we’ll be able to provide a more robust risk identification and audit approach.
Focus on your finances and business strategy
One of the key issues facing businesses this year will be how to cope with inflation and a potentially contracting economy. The key way to manage this will be for businesses to focus on their cash flow, ensuring they are consistently monitoring it and making adjustments when needed. Alongside this goes a renewed focus on your taxes. Your business may be entitled to a number of tax deductions and tax credits, and it’s important your accounts and business affairs are structured in a way that enables you to claim these. Taking advantage of automation where possible will help to ensure you have more time for tasks that add real value to your business, and it should also help you to have a clearer, more accurate and up-to-date view of your finances – essential for planning and cash flow management.
The best way to counter any uncertainty is to have a strong strategy and business plan in place. The start of a new year is an excellent opportunity to take the time to reset and plan for the year ahead – setting SMART goals and ensuring you have processes in place to monitor your progress and drive your vision and growth.
I’ve been working with a construction client recently in the role of a virtual CFO. They’ve experienced 100% growth in revenue, and we’ve found that monthly strategy reviews, budgeting and forecasting have been integral to managing those growing pains and giving them clear guidance and accountability. The outcome has been increased profitability for the client and sustainable growth.
Cash is king, and now more than ever it’s important to be doing regular cash flow reporting and forecasting, which will help you navigate through the tough times ahead. Ideally, cash flow forecasts should be reviewed at a minimum every three months. I’ve also been encouraging clients to keep an open dialogue with their stakeholders. This means that if payments are missed, you can keep on top of it and try to mitigate the impacts this has on your business.
2023 is shaping up to be another challenging year for business, but there will be some differences in the resilience factors necessary to withstand the headwinds and ultimately thrive. It goes without saying that businesses need to remain on top of good financial disciplines like cashflow, debt management and cost control. To thrive, however, this is a year when businesses should continually evaluate, and be nimble and adaptable in resetting business strategy in response to changing conditions such as consumer demand. A focus on innovation and customer experience will help good businesses distinguish themselves from their competitors and keep revenue flowing in.
Businesses should also be cautious in ensuring that any resource and cost rationalisations are well thought through. The scarceness of good talent is likely to be an issue for years to come and well beyond any current downturn. It is important that any talent rationalisations are not knee-jerk reactions as it may take years to build capability back up again. Finally, while it may be a year for businesses to be restrained, business owners should always keep one eye open for opportunities (there will be many) and have courage to capitalise on them.
Kiwi businesses working through the impact of geopolitical and economic uncertainty have been feeling a roller coaster of mixed emotions. Despite this, there are a number of reasons to remain optimistic and begin 2023 with a sharp focus on business strategy and planning. My top tip for business owners is to take some time to reflect on the past year and consider things that can be done differently – helping you as a business owner work more “on the business” rather than “in it”.
Take time to think about your business’ core values and set 2023 business goals with a focus on areas such as improving systems and processes, cashflow and profit, effectively measuring key performance indicators, increasing employee productivity, incorporating tax health checks & efficiencies, finding new ways of creating business development opportunities and marketing strategies.
As an example, I meet regularly with a client to discuss strategy, and we recently were able to work on their tax efficiencies that significantly helped with their cashflow difficulties. This was an out of the box thinking and we may not have come up with this idea were it not for our regular strategic and management catch ups – and it has helped them move through the next few months with confidence.
Mid-market M&A transactions to remain strong
Despite the uncertainty and headwinds with rising interest rates, inflation and tight labour market, the M&A market remained strong in 2022. I expect this to continue in 2023 for mid-market transactions with a number of attractive investment opportunities and dry powder available. 2023 may also be a year where we see business owners, founders and PE increase focus on growth and exit options. Understanding the impact of COVID-19 (positive and negative) and inflation on maintainable earnings will remain a key priority for financial due diligence. Some sectors may experience stronger headwinds than others, such as construction, property, tourism, hospitality and retail. This may also give rise to distressed M&A opportunities.
Understand the tax implications of your business decisions
While there is talk of a potential economic downturn, it’s important that businesses stay open to opportunities and continue to innovate. In the tax world, consideration should always be given to the tax implications of any significant transaction or restructuring. But it’s important to note that tax is becoming increasingly complex – look at New Zealand’s international tax regimes and recent residential property rules. An economic downturn may also be a catalyst for Governments to focus on their tax revenue, so expect increasing scrutiny from tax authorities. So, it’s important to get the right tax advice at the right time to ensure you’re making the best business decisions.
While 2023 is likely to have its challenges, there are also a lot of reasons to be hopeful – and following these tips will help see your business thrive no matter what comes your way. For more insights and help in setting your business up for success in 2023, contact your local BDO representative today or reach out to one of our new Partners.