It has been a tough time in business these past couple of years, with the impact of the COVID-19 pandemic and economic turmoil of late 2022. What can you do to see your company making money as we start this new year?
My businesses were not immune to the impact of both the pandemic and more recent economic challenges, so this is a personal subject for me.
Obviously, there remains a great deal of financial uncertainty as we start 2023: soaring inflation, the cost-of-living crises, the high cost of borrowing, recession, and uncertainty about consumer behaviour this year.
Is Making Money Possible?
In challenging times like these, there is much you cannot control when it comes to making money in business. However, there are simple steps you can take to protect your company and make it competitive in 2023.
These include cutting costs, identifying your goals, budgeting, and being agile as a business. There will also have to be some hard decisions, which may include redundancies.
Budget
What will unfold this year, especially in terms of making money, remains unclear. What we have certainty about is what has already happened.
Use this experience and knowledge to develop the framework of a realistic and workable budget. You’ll need to be flexible and adapt to circumstances, but having a broad outline of what you expect to earn and what you need to spend puts you in a much healthier position for making money.
Look back at the start of 2020 and 2021 – both challenging years – and see what your revenue was like in the opening quarter. How did revenue and profits line up in each of these periods? Q1 2023 will be just as challenging as the past two years, so looking back can help you plan.
You likely had to cut expenses during the pandemic. Are there costs that have crept back in which, when you look back over the past 12 to 24 months, you could manage just as well without?
Your accounts will reveal revenue streams that continued to work for your company, even in challenging times. From those records, you can identify where to invest resources while the economic challenges persist and what you might expect to earn.
Identify Your Goals
We’re talking about making money, but that’s not a clear enough ambition for a business plan. And, in such challenging times for business, the goal of anything beyond survival might seem fanciful.
But that attitude is not the foundation for success. There’s nothing wrong with dreaming big. Having hopes for growth in 2023 will not hurt your company. In fact, it will give you a clear idea of what you are trying to achieve, the commitment to work for those ambitions, and a basis on which to form a strategy.
Start by writing down your goals, and don’t be ashamed to dream big. Next, set achievable milestones towards those goals – you may not get to your ultimate ambition in 2023, but each step along that journey you take will move your business forward.
Share your goals with business partners, directors, colleagues, staff – whomever you feel is most appropriate. By sharing, you are making a public commitment to pursuing these aims. You are also outlining a positive vision that will energise people.
Dreaming big is good. It is a skill that the most successful entrepreneurs share. However, you need to know the difference between achievable reality and utter fantasy. So, remember to make your goals SMART – Specific, Measurable, Achievable, Relevant, and Timebound.
Analyse Your Finance
How will you know if you are making money if you don’t keep a keen eye on the finances? To paraphrase Theo Paphitis, turnover is vanity and profit is sanity.
You need to be active in your analysis by consistently producing balance sheets and updating financial statements.
You can compare this against your budget plan and business strategy for the year to see how you are doing. But it needs to be done regularly. If you only glance at the books once every six months, patterns and warning signs, or opportunities to invest, will be missed.
Ensure your bookkeeper or accountant is providing you with the data you need regularly – and not just bottom-line reports with broad percentages – the raw data.
Get to Know Your Cash Flow
This really follows on from the point above. How can you know how your business is doing if you don’t understand the finances?
Glancing at a revenue report which shows a healthy turnover may make you feel secure. But what are your costs? Is there any profit? Are you actually making money?
Many businesses which are successful on paper get into trouble because of cash flow. A healthy order book or client base looks good, but when are they due to pay you? Do you have enough cash on hand before then to cover your costs?
In 2023, it may be necessary to shorten payment terms to reduce the gap between your spending and you being paid. The shorter this period, the more cash on hand you will have and the less you will need to borrow – essential with such high interest rates. The same goes for your spending. You may need to know when to cut back.
You accountant will be able to help you develop a cash flow projection that clearly explains your income and expenditure and identifies potential gaps between the two. Sometimes such projections make uncomfortable reading, but being on top of cash flow lets you deal with issues before they become business-critical problems.
Keep Saving and Making Money
When finances are tight, you won’t feel like you have the money to put aside for a rainy day. The past two years have taught us the crucial value of having a war chest.
An excellent way to ensure you are making money work for you is to cut costs and, where possible, put that saving aside for emergencies or future investment.
For example, stick rigidly to your budget during the next 12 months. As you carefully monitor cash flow, look at cost centres that could be trimmed.
Taking your business paperless can save significant sums. With the proliferation of affordable, secure, user-friendly digital tools (such as online document storage and sharing, digital signatures, and accountancy software), this is a simple process.
This can be extended to travel. The pandemic showed us how effective virtual meetings, using Zoom and Teams, can be, even for closing sales. We also saw conferences and trade shows moving online, helping many businesses save significant sums on staff travel without missing networking opportunities.
Look at time management for yourself and your staff. Closely examine production and staffing costs to see if cuts can be made without damaging productivity. Revisit your suppliers – are there better deals to be had?
Have you looked at how outsourcing some activities, such as IT and marketing, could save your business time and allow you to focus on your company’s core activity? Although it may seem like an extra financial commitment, outsourcing achieves fixed costs to have services provided to a high standard and free up staff from duties they may not be fully trained for.
When you identify savings, try to put that money aside for the future. Recent history has taught us that the unexpected happens, and it happens quickly and with a massive impact on business. Being prepared is simply sensible. And if you don’t need to dip into the ‘emergency’ fund in 2023, you could have the capital to invest and expand in 2024.
Keep Your Customers
It is cheaper to keep a customer than it is to find a new one. This is an important lesson everyone in business should understand.
Sadly, during times of economic downturn, there are many who seemingly abandon existing customers in a bid to find new ones. They believe the current client base will stick around while they attempt to grow the business with new people. They won’t. And then making money becomes even harder because you’re investing heavily to find new sales while losing the ones you rely on.
A better approach is to care for the customers you have, who like what you do or sell and have some loyalty to your brand. Why not introduce new or enhanced services and products to your client base?
Importantly, listen to them. Make it simple for them to give feedback and comments, and take the time to respond, so they feel cared for.
If you don’t care for your customers, the lifeblood of your business, there are plenty of competitors out there who will take them from you quite cheerfully.
Forward Thinking
After a traumatic few years, it is easy for our mindset to become fixed on dwelling on the past. With doom and gloom all around the economy, it is easy to fixate on the problems of the here and now.
Shift this mindset to thinking about the future. Yes, you must learn the past lessons and be fully engaged with the challenges of right now, but you must also set goals for the future. Think big, aim high, and visualise a bright future – and how you will get there.
Put your energy into building plans, budgets, and strategies with that better future as your focus. Yes, you need to be realistic and aware of the past and present, but don’t let that stop you from thinking past 2023.
Be Flexible When Making Money
This is an area where smaller businesses often excel. Being adaptable and agile can be essential when it comes to making money.
We don’t know what this year will hold, but we know it will likely be tough. That means you need to be fast to take advantage when the opportunities come because there may be fewer in 2023 than you’d hope for.
Reducing bureaucracy and administration gives you, and your senior management, more time to think and act when circumstances demand a fast response. If you are bogged down in time-consuming, routine tasks, will you be ready when business comes knocking?
A simple step is to automate routine tasks where possible, using cost-effective digital platforms and tools, and outsourcing other duties to experts who might know how to carry out the job better than you, such as accountancy, HR, and marketing.
Showcase Your Business
There are two elements to this tip. The first is to differentiate yourself from the competition by demonstrating outstanding customer service and cost-effectiveness.
When people are more cautious than ever about every penny they spend, you need to reassure them they are getting high quality at competitive prices from a business they can trust and engage with.
Trust and affordability are leading decision-making influences in 2023.
Secondly, let people know. If you are meeting and exceeding customer expectations, why not shout about it?
After telling you to budget, manage every penny, and cut costs to save for the future, it may seem counterintuitive for me to recommend you invest in marketing.
It is not good enough just to have excellent products and services, people need to know. You need to assure and reassure existing customers that you will keep delivering. You must show potential customers why they need to do business with you.
Marketing doesn’t have to be a drain on resources and can contribute to making money. I have written on this subject previously.
Making Money for the Future
While the next few months will be a period of challenge and uncertainty, there is no reason not to be optimistic.
Eventually, the economy will recover. The businesses that have learned to be lean, agile, and cost-efficient will survive and be best placed to maximise the opportunities as things improve.
Hopefully, these tips will give you the foundations for making money in 2023 and beyond.
