Planning in the calendar’s opening months sets the tone for a company’s financial performance for the rest of the year, especially in a year with as much uncertainty on the horizon as 2023. With the dawning of a new year, many people’s attention is on the impending annual tax preparation. But those who focus solely […]
Planning in the calendar’s opening months sets the tone for a company’s financial performance for the rest of the year, especially in a year with as much uncertainty on the horizon as 2023.
With the dawning of a new year, many people’s attention is on the impending annual tax preparation. But those who focus solely on April are missing out on key opportunities to improve during the remaining 11 months of the year.
“One of the things we see businesses forget to do is look at what are the capital expenditures they anticipate for the coming year, and make sure those are in their projections or budget,” said David Hartman, chief lending officer with Core Bank. “Whether it’s equipment or vehicles, whatever you need to make your business run, you want to put those into the budget on the front end so you can manage your cashflow.
“If you have the ability to pay cash for an item, maybe that’s less of a planning issue. But if you are looking at borrowing, this year in particular, you really are going to have to take into account the higher borrowing costs.”
Financial experts like Hartman concur over the opening months of the year being prime opportunities for planning and forecasting. This, they say, is even more critical in 2023 when the financial climate is still recovering from the pandemic and recession is on the minds of most economists.
“What all businesses, including us, do on an annual basis is prepare a budget for the following year or, basically, projections for the following year, based on historical performance,” Hartman said. “Right now, some historical performance is a little more difficult because of what we came through with PPP. So, what we’ve been looking at is, where were we at prior to the pandemic? Go back to see what you were looking at for a budget and projections for 2018 and 2019 and start there.”
“Some people naively take the financial results of the prior year, apply a modest growth rate, then set their expectations for the coming year,” he said. “We advise clients to diligently review the prior year’s financials and develop a list of 10 things impacting their business or personal situation that they didn’t plan on happening during the prior year but impacted their financial situation.”
Bedient said all business owners and entrepreneurs should pay particular attention to “what ifs” in this step, especially given the high degree of uncertainty 2023 represents. He also pointed to changes in interest rates as a very important variable, substantially affecting the price of borrowing money.
“Business balance sheets have added significant cash since 2020,” he said. “At that time, interest rates available on cash were very low by historical standards, but significantly increased in 2022. It’s important that people evaluate the rate of interest available and continue to have an appropriate reserve for their situation.
“Larry Swedroe, head of financial and economic research at Buckingham Strategic Wealth, always says ‘My crystal ball is cloudy,’ when asked about what he thinks will happen in the short-term. This is a helpful reminder to not be too certain about the future.”
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Planning in the calendar’s opening months sets the tone for a company’s financial performance for the rest of the year, especially in a year with as much uncertainty on the horizon as 2023.
With the dawning of a new year, many people’s attention is on the impending annual tax preparation. But those who focus solely on April are missing out on key opportunities to improve during the remaining 11 months of the year.
“One of the things we see businesses forget to do is look at what are the capital expenditures they anticipate for the coming year, and make sure those are in their projections or budget,” said David Hartman, chief lending officer with Core Bank. “Whether it’s equipment or vehicles, whatever you need to make your business run, you want to put those into the budget on the front end so you can manage your cashflow.
“If you have the ability to pay cash for an item, maybe that’s less of a planning issue. But if you are looking at borrowing, this year in particular, you really are going to have to take into account the higher borrowing costs.”
Financial experts like Hartman concur over the opening months of the year being prime opportunities for planning and forecasting. This, they say, is even more critical in 2023 when the financial climate is still recovering from the pandemic and recession is on the minds of most economists.
“What all businesses, including us, do on an annual basis is prepare a budget for the following year or, basically, projections for the following year, based on historical performance,” Hartman said. “Right now, some historical performance is a little more difficult because of what we came through with PPP. So, what we’ve been looking at is, where were we at prior to the pandemic? Go back to see what you were looking at for a budget and projections for 2018 and 2019 and start there.”
Uncharted Waters
The watchword in each of the past two years has been uncertainty as the world attempts to moderate the unprecedented upheavals of 2020, and 2023 dawns no differently. Per theascent.com, economists are all over the map when it comes to economic predictions: “from OK to bad to very bad,” an article on the matter states. Depending on the source, the industry’s top priorities range from cryptocurrency to ESG to shoring up the supply chain, with seemingly no agreement. All of this is enough to complicate things as business owners attempt to grow or allocate financial resources. Chris Bedient, partner with HBE Wealth Management, said not unlike individual New Year’s resolutions, a business should start with tangible goals for the coming year. He recommends setting these by quarter with first-quarter planning devoted to reviewing existing investment portfolio performance as of the end of the previous year and evaluating whether the asset allocation should be changed based on financial objectives.
“Some people naively take the financial results of the prior year, apply a modest growth rate, then set their expectations for the coming year,” he said. “We advise clients to diligently review the prior year’s financials and develop a list of 10 things impacting their business or personal situation that they didn’t plan on happening during the prior year but impacted their financial situation.”
Bedient said all business owners and entrepreneurs should pay particular attention to “what ifs” in this step, especially given the high degree of uncertainty 2023 represents. He also pointed to changes in interest rates as a very important variable, substantially affecting the price of borrowing money.
“Business balance sheets have added significant cash since 2020,” he said. “At that time, interest rates available on cash were very low by historical standards, but significantly increased in 2022. It’s important that people evaluate the rate of interest available and continue to have an appropriate reserve for their situation.
“Larry Swedroe, head of financial and economic research at Buckingham Strategic Wealth, always says ‘My crystal ball is cloudy,’ when asked about what he thinks will happen in the short-term. This is a helpful reminder to not be too certain about the future.”
