There’s something exhilarating about turning the page on a new year. A fresh start gives us an opportunity to reflect on the past twelve months and plan for what’s ahead.
In 2022, many businesses overcame pandemic-related challenges and pivoted their attention back to innovation and growth. This shift was a welcome change from the survival mindset of the years prior and allowed finance teams to focus on emerging technology, create a data-driven culture, and keep an eye on human impacts.
Want to see if our predictions for 2022 were accurate? Read last year’s blog.
As we journey into 2023, many businesses are cautiously optimistic. Strong macroeconomic headwinds are poised to create another year of market uncertainty; baseline costs are increasing, and there is friction from a finance and cash perspective. However, there are ways to anticipate and respond to these fluctuations that position your business for success in 2023. Fluidity will be critical, as we learn to adjust to new norms.
Let’s review my five predictions for 2023 and how they will affect your business.
1. Cash will retake the crown
The economic shifts of the last few years have led to the perfect storm. A trifecta of rising interest rates, growth headwinds, and steep inflation are placing pressure on cash – and businesses are feeling the squeeze. The best way for organizations to survive this challenging economic environment where “cash is king” is through rigorous and consistent cash management.
I expect to see finance teams conduct weekly and even daily cash forecasting. To help manage this process, companies should look to financial planning and analysis (FP&A) software to help them automatically track and analyze cash inflows and outflows. A finance platform will allow finance leaders to predict and plan for different scenarios. This level of granular visibility will also empower finance leaders to make quicker, better, and more informed decisions in the face of business uncertainties.
2. Financial covenant management will be front and center
For highly leveraged businesses (those with significant debt), covenant management will be critical in the year ahead to avoid putting the company at risk.
If your business is not managing its covenant through advanced FP&A processes, be wary of the bank coming to collect your cash. In contrast, organizations without debt are in an ideal position to prioritize growth and use their cash reserves to buy a competitor, grow market share, or make other strategic investments.
3. Volatile currencies will require close oversight
I anticipate currency fluctuations will continue in 2023, impacting profits and global competitiveness and placing added pressure on your finance teams to handle contractual and operational risks. Finance teams with international operations will need to closely monitor accounts receivables, accounts payables, and debt obligations, as fluctuating exchange rates can increase the actual cost of an outstanding payment or decrease the dollars received in payment.
4. Back to basics in finance
Perhaps most importantly, the new year will demand a return to fundamentals. Finance teams will be encouraged to step back and rethink processes, team skill sets, and technologies to enable granular monitoring of financial principles and cash flow. Data visibility, financial discipline, and human decision-making will rise to the forefront of finance activities, paving the way for the adoption of more advanced technologies like artificial intelligence (AI) and machine learning in the months ahead.
5. Infrastructure and data investments will pay off
An anonymous Navy Seal said, “Under pressure, you don’t rise to the occasion, you sink to the level of your training.” This same idea can be applied to your businesses’ financial planning and cash management headed into 2023.
Businesses that double down on infrastructure, and broad analytics technologies will now benefit from a higher level of visibility into critical metrics, such as cash flow and debt covenant management, for meticulous forecasting and strategic decision-making.
So, there you have it, my five predictions for 2023. Overall, I anticipate a shift back to basics, including new processes, skill sets, and technologies to help businesses weather an uncertain economic climate.
In summary, my predictions for finance this year are:
- Cash will retake the crown
- Financial covenant management will be front and center
- Volatile currencies will require close oversight
- Back to basics in finance
- Infrastructure and data investments will pay off
Want to get a head start on preparing your business for the next twelve months? Watch my panel with FSN for more advice on how to stay agile.