It's no secret that for any business, the budget is a foundation upon which the company — and its financial future — rests. The budget serves as a road map that looks back to where you've been and forecasts where you'd like to go. It should also come as no surprise that, to yield success, budgets must be deeply aligned align with strategy; in this sense, they need to be highly responsive to shifting economic and social conditions and alert to regulatory updates.
That can be difficult at a moment like ours when the Great Resignation, inflation and recession worries continue to present challenges that can make outlooks hard to pin down. At a time when unified predictions are in short order, making decisions about financial futures comes with an added layer of difficulty.
As we move into a new year filled with economic volatility and more potential unknowns, CFOs must adapt their budgeting strategies and reevaluate their priorities. With an evolving perspective and informed analysis of broader needs, CFOs can plan to set their companies up for stability and help businesses stay on track.
This article will review key areas worth paying close attention to when planning your company's 2023 budget — and new perspectives that can help during unclear times.
Tech Needs: Automation, Software and Cybersecurity
Inflation is on every company's radar, presenting challenges across many aspects of day-to-day business and long-term strategy. One way CFOs are combatting it is by turning to automation. As prices rise and purchasing power decreases, companies are under pressure to increase efficiency and reduce costs. By automating repetitive or time-consuming tasks, companies can free up employees to focus on more essential duties. One area many CFOs are looking to automate, for example, is accounts payable.
Also on the rise is a more advanced version of robotic process automation (RPA), known as RPA 2.0, which goes beyond repetitive tasks to identify patterns and make predictions based on data. With its evolving data flow, companies can adapt quickly to changes in their industry or economic landscape.
However, if you plan to enhance your technological footprint next year, you must consider all the moving parts. In addition to the actual software costs, your company may need to hire employees to administer the programs and train current employees on the various software functions that affect their work. You may also want to consider associated costs for cybersecurity and software updates.
Factoring in New Talent
Given the super-charged job market, closely examining your company's talent needs is essential in planning for next year. What new positions might you need to create? And how can you attract top talent to your organization? A comparative look at your industry — and how it's responding to the talent crunch and inflation—can provide critical insight. For small- to mid-sized businesses, the Main Street Index can provide crucial insights. What kinds of signaled changes could impact your business? Answering these questions can ensure that your budget reflects your company's evolving needs and how industry standards are affected.
Suppose the current economic climate gives you pause when it comes to hiring new positions. In that case, one of your company's most significant decisions may be whether you should pay to have talent on the inside or focus on outsourcing. Hiring interim talent to fill urgent gaps or solve immediate problems until the economic dust clears will allow you to test the sustainability of a new position before adding it to your company's structure. But perhaps some functions are easier and more cost-effective to outsource to a managed services company. Looking closely at your talent needs, current resources and overall business strategy can help determine your company's hiring path.
Strategizing Staff Retention
A company's most important asset is its employees. Investing time and funds in your employees can create a committed and engaged workforce that will help employees succeed and want to stay; it also can build an adaptive, responsive workforce ready to tackle the day's challenges.
One of the most significant ways to retain staff is by offering competitive salaries — an initiative already in the works across all industries. As the U.S. economy continues to face a talent crunch, employers are projected to increase salary budgets for their employees in 2023. A recent survey by Willis Towers Watson revealed that companies are budgeting an average increase of 4.1% for 2023 — the largest increase since the Great Recession. It also found that nearly two in three U.S. employers have budgeted for higher employee pay raises than last year. To this end, a compensation study might be helpful in helping you plan compensation structures.
While compensation is undoubtedly a vital part of the equation, it is only one piece of the puzzle. To retain employees effectively, you may consider allocating funds for a more robust employee benefits program beyond health insurance and retirement plans. Consider investing in childcare assistance, generous paid leave policies and transportation subsidies for employee work-life balance. Making sure you have resources and support for employee mental health is another vital piece, especially taking into account the ways that current conditions means many employees will require additional support.
It is also important to offer professional growth and development opportunities, so consider investing in robust online training or certification programs.
Addressing Accounting Changes
As companies budget for the upcoming year, it is crucial to be aware of any potential changes in accounting standards, tax laws or government regulations that could affect the bottom line — and to prepare well in advance while resources and support are available.
A glimpse at a few significant changes from the past year include:
Creating a budget for your company can feel like playing a game of chess. You must think several moves ahead and account for a variety of potential outcomes, and every change you make has a ripple effect. It's a particularly true sentiment when incorporating accounting, regulatory or tax changes.
For instance, if you are implementing a new accounting standard, like ASC 842, you need funds for staff training, a communications strategy for stakeholders, and a long-term game plan. As another example, potential SEC changes to ESG reporting will require public companies to dedicate significant resources toward compliance — and necessitate prompt collaboration with their auditors; the changes will also affect the information public companies require from vendors and customers. And companies may want to consider any impacts a potential economic slow-down has on impairment analysis for things like goodwill and intangible assets. For these considerations and more, call in a professional who can provide insight into the specific needs and challenges facing your company.
Taking the time to understand accounting standards and practices changes can be daunting. But by being proactive and staying informed, you can avoid costly mistakes and ensure that your budget for the upcoming year reflects the latest changes.
Embracing Financial Planning
Given our volatile economic environment, effective financial planning and analysis are more important than ever. Deeper budgeting and strategic planning can help find ways to overcome inflation, budget for hiring costs and utilize fundamental tools to gain a more accurate cost of increases you are likely to bear this year.
Financial planning and analysis (FP&A) experts can help your company execute a successful budget and formulate long-term strategies. These finance professionals are trained in forecasting, data analysis and financial modeling, and they use their skills to help organizations make sound decisions about where to allocate their resources. In addition to helping formulate annual budgets, FP&A experts can also develop long-term financial projections and identify potential risks and opportunities, putting you on the track to success.
For more information about budgeting and strategic planning solutions, contact our FP&A team today.
Published on August 22, 2022