The Most Important Money Moves to Make In 2023

The financial landscape in 2023

The recent economic landscape brought with it numerous challenges for financial small businesses that are likely to remain in 2023. Inflation is at 40-year highs, prompting an aggressively hawkish stance by the Federal Reserve when it comes to interest rate hikes. Rising interest rates means lending becomes more expensive and, typically, access to capital tightens as well.

Meanwhile, supply chain challenges continue to cause significant lead times on important orders, requiring business owners to plan well in advance. Still, maintaining a complete inventory can be a challenge. This means many entrepreneurs may have had to explain supply chain delays to customers who are already shouldering price increases due to inflation. 

For many small business owners, the year ahead will be a challenging one from a financial standpoint. These issues may affect not only small business sales and profits, but also have an impact on larger-scale businesses and some of the biggest companies in the U.S. 

Money moves small businesses should make this year

Having a productive year begins with planning. The first step toward making this the best year yet for your small business is analyzing your financial situation. Once you have a clear picture of your business’s fiscal outlook, you can take the following actions to improve its position.

Raise prices.

Raising prices is never a popular decision, but in an inflationary economy it may be necessary. If you need to increase prices, be sure to communicate with your customers transparently and give them plenty of fair warning. Most customers understand that the current economic conditions have led to price increases at most of the businesses they’ve frequented, so a major backlash is unlikely. Try to avoid increasing prices more than once or twice each year, and keep increases between 5 percent and 10 percent at most.

Renegotiate with your suppliers.

If your business has been feeling the pinch from higher prices and costs, then it is up to you to do something about it. If you have bought supplies from the same supplier for a period of time, chances are quite good that the supplier will not want to see you go out of business. Talk to them. Let them know your position and explain how lower prices may benefit your business as well as help you continue purchasing from them.

If a supplier is unwilling or unable to lower prices, ask if you can alter payment terms to give your business more breathing room. If you’re currently on a Net 30 payment schedule, ask if they’d be willing to accept Net 60. The extra time could help you collect on accounts receivable to pay the bill.

Avoid borrowing or choose a fixed rate now.

If you can avoid borrowing now that interest rates are rising, do so. However, some businesses may be anticipating (or already experiencing) cash flow issues due to the current economic challenges. If you absolutely need to borrow money to prepare for a recession should it occur, do it as soon as possible and choose a fixed rate loan. The Federal Reserve is only expected to continue raising interest rates throughout the year. This would likely eclipse 5 percent, which would be the highest rates since the 2008 financial crisis. Borrowing at a fixed rate now can help you avoid the cost of further interest rate hikes. 

Cut expenses.

Bringing in more money and seeking funding is all well and good, but there comes a time where cutting expenses is the only way through a difficult economy. Start with expenses that aren’t operational necessities, such as big team outings or trade association memberships. 

If those cuts aren’t enough, you may have to make some tough decisions: are there business software subscriptions that are underused and can be reduced or canceled? Examine all your monthly expenditures to see what tools you can do without, and you may be able to lower your accounts payable significantly enough to avoid further cuts.

Once these other options are exhausted, you may have to consider a workforce reduction, either by cutting hours or instituting layoffs. If you must go this route, make sure your cuts are decisive and sufficient to see your business through – additional rounds of layoffs will surely eviscerate morale and leave your remaining employees looking for the door.

Financial tools small businesses should use

There are plenty of financial tools and services available to businesses, which can help support operations in both good and bad economic times. Consider the following to help support your business’s financial health:

• Accounting software: Accounting software is a must for businesses that want to proactively manage their finances. These tools help automate the most tedious accounting functions and present overviews of your business’s fiscal health in real time. The best accounting software is instrumental in alerting you to potential issues before they become a major problem. Read our QuickBooks Online review to learn more about our best pick for small businesses.
• Payroll software: Keeping your people paid and tracking wages and salaries is a critical part of doing business. Labor tends to be the largest expense for most companies, so you need payroll software that can help you keep tabs on where that money is going. The best payroll software integrates with your accounting software, giving you a comprehensive overview of your revenue and expenses. Read our review of OnPay, our favorite small business payroll software.
• Credit card processing: Credit card processing services enable merchants to accept debit and credit card payments in exchange for a processing fee. The best credit card processors offer flexible terms and low rates. Check out our Merchant One review for a service that offers easy approval and low fees for new customers.
• Business loans: Loans can be an effective way to improve the solvency of your business ahead of tough times. It’s critical to know you can meet the debt service and ultimately pay the loan back, but by planning meticulously and borrowing only what you need, they are a great tool. The best business loans offer good rates and favorable repayment schedules. Consider our review of SBG Funding, one of the most flexible business lenders we reviewed.

Wise money moves can give you breathing room

Making some of the financial adjustments suggested above can help give your business the flexibility it needs to weather a challenging economy. Always consult with your financial professional before making any drastic changes to forecast what the effects might be. However, if you’re thinking about making decisions that could bolster your business’s fiscal health, consider doing so today. The year ahead could get rocky, and entrepreneurs who prepare ahead of time will be best positioned to navigate it successfully.