Businesses are directly affected by the state of the economy. As we wind down the year it is important to consider how the current economic challenges, and the common issues your industry faces, might impact your business in the year ahead.
With the continued threat of recession and consumer prices up more than 8% from a year ago, it is vital that your business plans ahead to develop the necessary protocols and strategies to safeguard revenue, stabilize your business and continue to develop plans for growth.
How inflation and a possible recession might impact your business
Inflation can be thought of as the increase in the price of goods without an increase in its value. As inflation in the States continues to rise, the purchasing power of consumers will weaken, which directly impacts supply and demand and threatens the turnaround and revenue of businesses. This will do the already volatile economy no favors as a weakened consumer spend will translate to a sustained period of weak economic activity, placing the economy at greater risk of recession. This may make it harder for your business to generate its usual sales, apply pressure to your debt-collecting system, limit your access to crest and ultimately force you to cut drastically.
In light of the above, the following considerations should be included in your 2023 business preparation strategy:
1. Dive into the numbers
The end of the year is a good time to reflect on what worked well for your business and what can be improved on. Your accounting reports have all the answers, and it’s the right place to start. Looking into your chart of accounts at the end of the year will help you determine a cost-cutting strategy and help you identify poor paying clients to monitor.
As part of understanding the financial position, you will also need to look at reconciliation statements that will indicate any discrepancies in the numbers and offer valuable information on your equity and overall financial health of the business.
Financial statements to analyze:
- Income statements to help you understand the profits and losses within your business over the course of the year.
- Cash flow statements to give you insight into the amount of cash and cash equivalents within your company over the course of the year.
- Balance sheet to show you an up-to-date view of the assets and liabilities within your business.
Working on your blind spots and building on your strengths is important for business growth. Studying the numbers will not only benefit your decision-making ability but will also be useful for securing potential investors. Looking into your list of suppliers and doing a due-diligence of competitor suppliers of the same products is also good to include in your cost-cutting strategy. If there is room to negotiate better pricing or use a different supplier who is reputable in your industry, you may be able to save your business some money.
2. Study supply and demand trends within your industry
Your revenue is directly impacted by the demand for goods and services within your industry. As inflation in the States continues to rise, the purchasing power of consumers will weaken, which may have a knock-on effect on your business revenue. It is important to consider your supply strategy, and build in a contingency plan for stocks when supply decreases. Businesses who oversupply through either stock, capital or staffers may struggle when inflation rates continue to rise or if the looming recession becomes a reality.
3. Reconnect with your vision
Securing revenue and keeping things running smoothly can come with many curveballs that can deter businesses from keeping their company vision front of mind throughout the year. A new year offers the opportunity to make sure your business focus aligns with your holistic company vision and brings a chance to implement processes that aid the business to achieve this in this new year. Some of the things to consider when cross-checking business operations with company vision, is to look into whether the processes you have in place promote your business goals as set out in the mission statement of your business. Does your business place employees at the centre of its decisions as it sets out to do in its vision statement? Are you implementing competitive pricing as your business mission says it would?
4. Consider your tax planning strategy
Tax preparation is not as simple as monitoring income and expenses for the relevant tax filing form your business needs to submit to the IRS each year. There are many accounting considerations and best practices to implement when planning your tax strategy. Entering a new year is the perfect opportunity to consider methods that promote a smoother tax filing process. Some of the accounting processes to consider when preparing your tax strategy at the start of a year, include looking into the following:
- Analyze your income and expenses
- Consider the best software for reconciling all accounts
- Study qualified tax deductions
- Consider the possibility of multistate or residency taxes, if this applies to your business
- Save important tax dates on your calendar. (Estimated quarterly tax payments are due on April 15, June 15, September 15, and January 17)
5. Employ the help of professionals
Managing multiple divisions of a business can easily become the mandate of many business owners. While it is useful to have a high level view of the progress of different parts of your business, trying to manage everything will inevitably lead to sub-par outputs on some of the important parts of a business. Handing some of the work over to experts in the respective fields of your business will not only free you up to make managerial decisions, it will also ensure precision and accuracy within the respective divisions of a business. Whether you are needing expert oversight of your accounting process and accounts management, or whether it is calculated inputs for strategic business planning and advice you need, recruiting the services of an expert CPA or other outsourced professional relevant to your business industry, could save you time and money.
At Fusion our CPAs are qualified to help small and large enterprises prepare annual tax returns and analyze recon statements to optimize tax returns. We can help you set up your accounting software, implement business intelligence strategies to help you better understand your business finances and prepare for the tax year ahead. Contact us today.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.