Inflation and interest rates are up. Financial markets are volatile and were down by double digits in 2022. Layoffs are on the rise. COVID and the war in Ukraine are disrupting supply chains. And recession worries hang over businesses like a cloud.
What can CEOs do about such BIG problems?
What you CAN do is go back to the basics and double down on controlling the things that you can control. That starts with your company’s financials.
Here are four financial keys to a successful 2023 that we’re coaching our clients to focus on in the year ahead.
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1. Be ready for game time.
Is your business like the player who shows up to training camp out of shape and uses the first part of the season to get game ready? Or is your business like Michael Jordan, Tiger Woods, Serena Williams, Tom Brady, Lindsey Vonn — the folks who treat every game, every practice, like they’re playing for the championship?
In 2023, your business won’t have time to round itself into shape. The boom years of cheap money, low inflation, and sky-high corporate valuations are over for now. Even great companies probably have some fat to trim, whether it’s slimming down SKUs to match customer demand or replacing underperforming legacy employees.
And mediocre companies that happily treaded water when the going was good will have to justify their existence by actually making money and finding an avenue for growth.
That’s what makes Elon Musk’s tenure at Twitter so fascinating, if you can set aside his political trolling. On the one hand, kicking half your staff out the door — right before the holidays, no less — isn’t going to win you many diehard fans in or out of the business. High-EQ leadership is still going to be an essential skill as your company adjusts to our new financial reality.
On the other hand … Twitter was never profitable! It had become bloated and stagnant. And if the words “bloated” and “stagnant” hit a little too close to home for you, then now is the time to reevaluate anyone on your team who isn’t putting in the work necessary to realize your vision.
Start with your c-suite and team leaders. Grab a sheet of paper and rate everyone: A, B, C. Who are the B’s you can coach up to A’s? Who are the C’s, and why are you heading into another year with them on your payroll?
And, finally, who are the hard workers whose hard work just isn’t translating into higher profits? How much more cash are you willing to hemorrhage on a breakthrough product that hasn’t broken though, or a satellite service team that isn’t drumming up enough recurring business?
There are challenges ahead in 2023. But there will also be opportunities. A nimbler, more focused, and more committed version of your company will be better-equipped to cope with adversity and stay on track for BIG.
2. Rigorously track your key financial metrics.
Most CEOs can identify a Huge, Outrageous Target they’d like to hit in the next 12 months. The leaders who successfully, and consistently, hit those targets are the ones who break their goals down into actionable activities that they define, measure, and manage obsessively.
Start with the basics. We like to look at the following financial indicators on a rolling 12-month graph to spot trends and take corrective action:
- Gross Margin
- Cost of Acquiring a Customer
- Operating Expenses by Department
- Net Margin
Then, identify the efficiency metrics that are unique to your business or to achieving your specific HOT, such as:
- Utilization rates
- Revenue per employee
- Conversion rate
- Average revenue per client
- Capacity utilization
- Asset turn over
Also, think about numbers you might not normally monitor that could impact your financials in 2023. For example, even if hiring does slow next year, dissatisfied top talent will still have plenty of job openings to choose from. And replacing key employees will be time-consuming and expensive. Do you have metrics that measure employee engagement, such as net promoter score?
And what about your customers? If they start tightening their belts, you’d better have top-notch analytics in place to help you identify potential new customers, new service and pricing models, and new marketing channels that will keep you in the black.
Filter these KPIs into a battle-ready balance sheet that you and your leaders can review regularly. And build dashboards that broadcast specific company-wide KPIs so that every employee knows how their progress — or lack thereof — is affecting your march towards BIG.
3. Schedule a monthly financial performance review.
The purpose of this meeting is for you, your CFO, and your comptroller to spend 60 minutes or less digging into the overall health of your business, with a focus on key three things:
- Compare actuals to budget and review your financial statements.
- Discuss trends, indicators of performance, and variances and ask, What’s off track? Why? What can we do about it?
- Take any budget surpluses and apply them to promising experiments to fuel future growth.
If you’re struggling or preparing for a major pivot due to the current business environment, you might want to put this on the calendar every two weeks. And before you adjourn, make sure any action items that come up are delegated with a clear “who does what by when.”
4. Maintain your key financial relationships.
This is one of those top responsibilities that the CEO can’t delegate. If you haven’t been sitting down regularly with your banker, financier, or key shareholders, make 2023 the year that you put check-ins and face-to-face meetings back on your schedule. While business is good, you want these financial stakeholders on your side in case there’s a significant growth opportunity, such as acquiring a distressed competitor or pivoting to a new consumer niche. And if business takes a turn for the worse, you’ll need them in your corner so that you can right the ship.
Are you ready to Make BIG Happen in 2023?
One advantage that CEOs have right now compared to 2020-22 is that, as we head into the New Year, you can already spot some of the major challenges on the horizon. COVID was a surprise. High interest rates and inflation won’t be. Master your financials so that you can start the New Year on solid ground and have the support you’ll need to face the unexpected, grow through obstacles, and Make BIG Happen.