How you budget in 2023 will look much different from this year. The gold rush is over! You need a savvier approach to managing expenses and revenues.
This was a crazy year for both demand and inflation. As long as you didn’t get caught unaware, you did well. My peer group clients did very well this year (the power of a peer group!)
Next year will be different. Are you ready?
You know what they say on Wall Street, “Past results are no guarantee of future performance.”
As I sat down this weekend to plan for my upcoming Financial Master Class, I put together five forward-thinking approaches you can use right now as you plan for 2023.
Keep a fluid approach to cost adjustments
You can’t just plug costs into your budget and hit cruise control. You have to watch costs on an ongoing basis. Be prepared to change your cost assumptions monthly, every other month or at most, every quarter.
Stay ahead of the cost wave.
Delegate responsibilities for tracking and updating costs into your estimating tools. This will allow for better purchasing and negotiating as well.
(If you are understaffed in admin, use overseas freelancers to do this.)
Use value-based pricing
You can’t just push up prices nonstop. Clients will balk — they already are!
However, when you do raise prices, you should raise value concurrently. To do this you must understand how clients perceive your value. Make no assumptions.
Engage clients in conversations about their needs and wants. Listen for pain points and what they appreciate about your services. What they wanted earlier may be different now. Be ready to tweak your products and services.
Ironically, just by engaging more with your clients, you will raise the value in their eyes.
Ask your team to get l-e-a-n
Even if you can pass on cost adjustments, your profits will stagnate or go backward in “real economic” terms. Put your teams on notice. Fight for efficiency.
Inform your people that the boom is over, and they have to fight for cost and time savings in every nook and cranny. Make this your mantra in 2023.
Support them with accurate and exact monthly budgets. Hold every manager accountable to their monthly budget. This requires more proactivity from your team:
- How they plan for their expenses
- How they set up complex install
Ask your team to start planning at least 30 days ahead on both. Put your team on notice that the company needs to operate with less cash going forward. Put a cap on the amount of cash you keep in the business.
Tighten up your contract terms and systems for collections and warranty prevention and management. Ensure your sales team has accurate monthly sales goals and is accountable weekly. Remove any residual complacency on your teams.
Maintain a backlog and white space
Fortify pricing pressure by maintaining a backlog. Also leave room — white space — for opportunistic sales.
It’s easy to say, harder to do. Here are four tips.
- Be more strategic in what you grow, so you don’t overextend yourself.
- Flex your capacity between your divisions, so you can use your people to address peak needs without overhiring.
- Use OT more strategically to manage peak demands as well.
- Grow sales to existing clients. You hardly had time last year; this year become experts at upselling and cross-selling.
Don’t forget to recover replacement costs.
Savvy budgeters recover their equipment replacement costs in their pricing. But what happens when the replacement costs go up dramatically? It’s already too late if you didn’t catch this over the past couple of years. How do you make sure you can afford to replace your equipment?
Your challenge
Remove complacency when building next year’s plans. Use data and convictions when setting up your strategies and operational tactics for 2023. Make efficiency your watchword.
Engage your team and engage your clients. The more they are on board, the better your chance of winning in 2023.
P.S. Join my Financial Master Class, where I will benchmark your numbers against the industry and explore better budgeting and planning to counter inflation and deflation and how to have a successful 2023.
