How to make 2023 the year of the Small Business
With talk of recession dominating headlines, it’s hard to stay positive about the year ahead. But provided small businesses continue to do what they do well, the outlook for 2023 isn’t all bleak.
With talk of recession dominating headlines, it’s hard to stay positive about the year ahead. But provided small businesses continue to do what they do well, the outlook for 2023 isn’t all bleak, write Dorian Crighton and Michelle Valler.
With a few solid strategies behind them, businesses can put themselves in a better position to ride out the tough times.
Be nimble about pricing
A small business in Wellington isn’t going to be able to change the price of steel in China or the cost of fuel to transport its goods. Leaders do, however, have control over how they react to these changing market conditions.
Many businesses wonder what their gross profit should be. There’s no magic number, but escalations to the cost of labour, supplies or anything else that affects your profits should be immediately passed on to customers where possible.
Business owners are often hesitant to increase prices, as they don’t want to risk losing customers – but in doing so, they lose their bottom line. When implementing a price change, consider this: if a customer asked why your prices have increased, what reasons would you give to back it up? If you have a solid business reason, there’s no reason not to go ahead. However, the reverse is also true. If your only justification is “everyone else is doing it”, customers will soon get wise.
Stock and Inventory are Emperor
Cash may be king, but stock is now emperor. You used to be able to walk into a store with an idea of what you wanted and walk out with it in your hands a few minutes later. With the current supply chain issues, customers are often waiting weeks, if not months, for products to arrive. Being able to give customers what they want, when they want it, will give small businesses an edge over competitors. That means ordering and holding more stock to ensure there’s always a ready supply (and charging a little extra to cover the holding costs if necessary). However, if you are offering things that will take months to arrive, always front-foot that with your customers to manage expectations.
If you sell products, regular stocktakes are also essential. If you’ve paid for a product but you haven’t sold it, that changes your results and gross profit. Many people hate stocktakes, but they are crucial and there are software systems that can help.
Have a plan
A strong business plan is essential, no matter what the future holds. Set yourself up well for 2023 by taking a moment to consider what’s on the horizon, what is the year going to look like and most importantly, “where can I see a hole in the future?”. Whether you’re planning on getting professional advice or not, understanding where your business is at is a valuable first step. Make sure your plan includes a SWOT analysis (strengths, weaknesses, opportunities and threats), and answers these key questions:
- Who’s your ideal client?
- What’s your budget?
- What do you stand for?
- What makes you stand out – what’s your point of difference?
- Where do you want to get to, and what does this look like each quarter?
- What are your KPIs?
Follow the money
A plan is meaningless if you don’t know how you’re going to get there. This requires a well-thought-out budget and cashflow.
A good place to start is to reflect on your past performance. From there, think about what’s changed in your business, considering your customers, suppliers, team, wages and the economic environment; then build a budget and cashflow strategy around that. The economic environment is set to be particularly turbulent in 2023, so it’s more important now than ever to regularly adjust forecasts as you go, to account for significant shifts in costs or revenue.
This is where professional advice can come in handy, with banks and business advisors able to advise on a good debtor system to get cash coming in promptly, or how to restructure your debts, operations and processes to manage costs.
Consider your culture
People want to work where they feel secure, which is why business owners need to be careful how they are managing their own stress, and how this is being projected to their team. If as a business owner and leader, you’re constantly fretting in front of your people about how you’ll pay the bills, naturally your employees are going to wonder if their job will still be around in a year’s time; or if it is, if they will be getting the remuneration they deserve.
Likewise, the importance of paying employees the right amount of money has never been clearer. In the era of the “Great Resignation” if you undercut your workers, they’ll soon find the door.
Factor in ESG
Tax changes, regulation and emissions reporting are continually adding new layers of compliance. This can be hard to keep up with.
As only listed companies and financial services providers are legally required to report on their environmental impacts, small businesses might have thought they had escaped these pressures. But it’s not just the regulators asking questions. Customers are becoming increasingly concerned about their environmental impact and are putting more pressure on businesses to substantiate sustainability credentials.
As this becomes common practice, small businesses will be asked the same questions, so if you haven’t already, consider getting help to monitor and reduce your carbon footprint. Often, the ongoing cost savings will far outweigh any initial outlay, while making your business more attractive to customers and business partners you supply goods and services to.
Before 2023 kicks off, put aside some time to sit down and come up with a business plan. Work out where you want to get to, look at your inventory, consider your cashflow cycle, and give your consultant a call.
Dorian Crighton (pictured above) and Michelle Valler are Directors, Business Advisory Services at Baker Tilly Staples Rodway.