Smart Money: 2023 financial planning opportunities for small business owners

Smart Money: 2023 financial planning opportunities for small business owners

Many business owners are happy to put 2022 in the rearview mirror with surging inflation, higher interest rates, slowing global growth, stubborn supply chain bottlenecks, a tight labor market and the war in Ukraine contributing to elevated levels of uncertainty. As you plan for 2023, it’s important to understand the potential challenges you may face in the year ahead and consider four key financial planning strategies to stay on track. 

Vistage Worldwide, a CEO coaching and peer advisory organization, reported little quarterly change in their Fourth Quarter 2022 CEO Confidence Index.(1) (The index began in 2003; Each quarter, CEOs are asked a list of questions, and the first six are used to create the CEO Confidence Index score.) The survey reflects the views of more than 1,400 CEOs of small- to mid-sized companies including economic, hiring and investment, and revenue and earnings outlooks. It’s an important sector creating an estimated 75% of all new jobs and 50% of the Nation’s revenue.

Q4 Survey Highlights

Sentiment clouded by uncertainty – U.S. business conditions are hard and projected growth expected to be low and slow for 2023. Pessimism decreased slightly. 15% of CEOs said economy recently improved while 58% said it worsened. Outlook for the next 12 months is split 51% expecting US economic conditions to decline, 38% remaining the same and 10% increasing. Costs continue to rise, but not as fast. Supply chain woes and energy prices have declined but are offset by increased wages fueled by ongoing talent challenges and continued uncertainty of Fed’s path of future interest rate hikes.

Hiring plans increase – 60% of CEOs expect increased hiring, compared to 52% in prior 2 quarters. Retention becomes more important when hiring is difficult. Success requires higher wages (84%), workforce development (72%), flexible schedules (68%), leadership development (61%), remote work (60%), enhanced benefits (52%), retention bonuses (44%) and labor-saving devices (41%).

Improving revenue and profit expectations – CEOs expect increased revenues (58%) and profits (43%) in the year ahead. However, consumers may be more reluctant to accept higher prices due to potential economic slowdown and depletion of excess savings.

4 Key Planning Opportunities for 2023

Focus on things you control and that matter – A common trait of business owners is living with a high degree of paranoia – the feeling something is not going to go as planned. That’s ok because uncertainty is the inability to call the future, and I love Denis Waitley’s quote, “Expect the best, plan for the worst, and prepare to be surprised.” If we can’t eliminate uncertainty, then let’s change how we perceive, accept, and plan for it. It’s why, for example, we recommend people restore emergency cash reserves, accumulate adequate retirement savings, and foster leadership development.

What’s your number? Successful retirement planning has two components – the science (or mathematics) of wealth accumulation, and the art or human behavior side of accumulating and maintaining wealth. Let’s focus on the first part – How much does it take for you to maintain your desired standard of living? Is it $5k, $10k, $20k a month? Then subtract cash sources including pension, Social Security, and rent. The difference is the gap that needs to be filled by your accumulated savings and the net sale of your business. Of course, the planning calculations are more sophisticated (inflation, taxes, debt payoff, assisted living, life expectancy, when to take social security, etc.) but it’s a start. If the gap is $10k a month, then you’ll need about $3 million. If half comes from savings (401k, trust, etc.) then you need $1.5 million net from your business interest. How helpful is it to know the target value required of your business? If people don’t know their number, then they tend to overestimate, and it can lead to frustration thinking they need $X Plus from their business. It’s like walking to the horizon or the end of the rainbow… you never get there.

What’s keeping you up at night? Are there business issues such as competition, expansion, profitability, talent acquisition and development, and exit? The same applies toward personal issues. 

Revisit your personal long-term financial plan and model it for multiple scenarios. Use 2023 to recharge and refresh your long-term plans, both business and personal. Two challenges with planning and forecasting are the “fear of getting it wrong,” and uncertainties of the future. Therefore, model for multiple scenarios and encourage objectivity and feedback from your professional team of advisors and fiduciaries as needed.

May this sage advice help you secure your small business’ future wisely.

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