With the end of the year right around the corner, most of our clients are busy planning. So, I scheduled a meeting with our CFOs to do a brainstorming session titled “Business Trends 2022.” I wanted insight into what they have seen across various industries and how those trends will influence financial planning for 2022.
It is important to remember that the CFO’s role is a strategic one. CFOs apply a financial lens to your business goals so they can help you develop operational and financial strategies for making them a reality. Although their plans may focus on the next 3-12 months, they always maintain a long-term view. In this way, they help you navigate the day-to-day while anticipating risks and strengthening your position for future growth. From this vantage, our CFOs asked me to tell you that if you get nothing else from this post, remember this:
1. Flexibility is the Key to Your Ongoing Success
If we have learned anything over the past few years, it is that change is inevitable. Change is happening quicker than ever, and businesses must learn to be agile. This means a hybrid approach for nearly everything – your work environments, marketing and sales efforts, delivery practices, and even crucial relationships with partners, suppliers, and employees. Small and mid-sized business owners may have the advantage here, but larger organizations can tap into economies of scale and other areas of strength.
2. Financial Planning Empowers You to Adapt
While it may sound counterintuitive, the path to flexibility is sound financial planning. When you assess where your business stands today, then develop budgets, financial models, tax strategies, and cash flow forecasts, you can anticipate roadblocks and adjust as you pursue your goals. Just be sure to build in the capability to model “what if” scenarios. For instance, you should be able to explore how a shift in your supply chain will affect your future cash flow.
You can expect to see these themes throughout this post. So, without further delay, below are the large and small business trends to prepare for as you look toward 2022.
Table of Contents
- Environmental, Social, and Governance (ESG) Criteria Affect All Businesses
- Hiring Has Become a Huge Challenge
- Remote Working is Here to Stay
- Covid-19 Pandemic – The Gift that Keeps on Giving
- Supply Chain Shifts are a Major Threat
- Technology is Power
- Policy Changes are Coming
- Valuations Continue to Rise
Trend 1: Environmental, Social, and Governance (ESG) Criteria Affect All Businesses
Every company has a responsibility to the society in which it operates. While this was primarily a concern for large, public organizations in the past, we are now seeing an effect on medium and small businesses. It doesn’t matter whether this is due to the current political climate, growing concerns about global warming, pressure from young adults, or a mix of factors. You cannot afford to ignore this situation because potential customers, employees, and even investors will judge you for any shortcomings. So, what can you do?
Think Strategically About How You Want to Position Yourself
Put aside some time to consider your organization’s values internally and as a participant in the broader ecosystem. Although you may be on a quest to build a valuable organization that can grow and scale, the days of doing so with abandon are over.
Some investors avoid businesses with questionable environmental or diversity track records because they see such companies as a financial risk. Potential clients and employees will often do the same, but for different reasons. Therefore, when a CFO tells you that you need a sound growth plan, they aren’t just talking about money. Business owners must manage their responsibility to society to remain economically viable and competitive.
Make Your Stance Clear and Take Advantage of the Opportunities
After you clarify your position, develop a communication plan. At the very least, share what you have been doing to mitigate your impact on the environment and to give back to your community on your website. You could also describe your hiring practices and the perks of working with your organization. For instance, a company with a reputation for encouraging employees to make healthy or eco-friendly choices, like taking mental health breaks or biking to work, will be attractive to today’s socially conscious workforce.
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Trend 2: Hiring Has Become a Huge Challenge
I have little doubt that you have heard of or experienced the effects of the labor shortage. While some blame this on a lack of motivated or available workers, others see it as a natural consequence of our aging and shrinking population, economic disparities, and shifting priorities among our workforce. And this is a problem globally, not only in the United States.
Regardless of the cause, the consensus among our CFOs was that this will have an economic impact on businesses and that employers must build adjustments into their 2022 financial plans. But how can you compete for talent while keeping your costs in check?
Lean Into the Perks Your Employees Really Want
Although you may need to raise wages and adjust important benefits like 401k matching, health care, and paid-time-off (PTO), you can likely offset these expenses with reductions in other areas. For example, game rooms, gratuitous snacks, and company-sponsored happy hours are nice in moderation but largely unnecessary if you improve your employees’ quality of life in other ways. Flexible hours, remote work options, or in-house childcare are just a few of the many possibilities.
Reevaluate Your Hiring Strategies
It is certainly enjoyable to build a full-time team and treat them like family, but it’s not always the most efficient or even rewarding way to get things done. Therefore, many companies are rethinking how they hire, especially when they don’t need (or cannot afford) a full-time person in every role. Instead, some are choosing to outsource work entirely or hire contractors.
We’re not talking about the gig economy, per se, although that may work in certain situations. Companies choose to outsource work for many reasons, but one of the best ones is because you can get the expertise you need at a lower cost. For instance, a full-time CFO will cost a small company (~$10MM in revenues) roughly $300,000 to $400,000 per year once you factor in bonuses, taxes, overhead, etc. But you can hire a fractional CFO to whip your finance and accounting function into shape, solve tough financial challenges, and provide strategic financial advice for somewhere between $6,000 and $12,000 per month, or $72,000-$144,000 per year.
Trend 3: Remote Working is Here to Stay
Remote working is not a new concept nor a viable option for everyone, but the pandemic forced even the skeptics to give it a try, and many have been pleasantly surprised at the outcome.
We have a terrific client who was one of those skeptics and took pride in the comfortable workspaces he created for his employees. Imagine his surprise when only a third of his staff wanted to come back to the office, and even those preferred to limit it to two days a week. Since productivity hadn’t suffered, he decided to embrace this new norm and support his employees no matter what they wanted, and his company is doing great. What strategies did he employ that you might emulate?
Equip Remote Employees with a Comfortable Home Office
Just because you are working from home doesn’t mean you must suffer in a non-ergonomic seat at your kitchen table. Ask your employees what you can do to make their workspace more pleasant. Perhaps they need a better chair, a standing desk, or technology like a good set of headphones and a big monitor. Such support can go a long way toward showing your valuable employees that you care.
Develop New Norms and Systems for Making People Feel Included and Respected
Although many of us prefer to work from home, we still crave connection. So, as an employer, it is essential to find new ways to foster connectivity and inclusion while remaining productive. Fortunately, there are plenty of digital tools that make this easier – project management software, collaborative digital workspaces, and Zoom, to name a few. But it is also important to think through the logistics, set clear expectations about performance, and allow people to set boundaries. For example, if your team works in different time zones, consider establishing (and enforcing) policies about acceptable times for team meetings.
Seek Opportunities to Reduce Costs
Of course, we wouldn’t be CFOs if we didn’t encourage you to reap the benefits of working remotely. Can you reduce costs by giving up or repurposing some of your unused real estate? Can you hire people in locations with a lower cost of living? Does your new acceptance of remote work make the idea of hiring less expensive contractors more viable? Get creative!
Trend 4: Covid-19 Pandemic – The Gift that Keeps on Giving
As we welcomed the summer season this year, many felt hopeful that the Covid-19 pandemic was near its end. Sadly, we were wrong. The Delta variant brought on another surge and tremendous pressure to get everyone vaccinated.
We have also begun to realize that things will never go back to “normal.” There has been a fundamental shift in how we do business. So, what can you do to stay afloat or even thrive while remaining respectful of your stakeholders?
Look for Opportunities to Adjust Your Business Model
Some of our clients experienced a dip in profits early in the pandemic but regrouped and are now doing better than ever. Why? Well, in some cases, they were simply in the right business. Others used the financial planning models we developed to run scenarios. This helped them gain insight into opportunities for reducing costs in some areas while investing in others. Businesses that shifted toward eCommerce and digital marketing while reducing their reliance on a brick-and-mortar presence are a great example of this. They simply leaned into the way their customers wanted to buy.
Be Mindful of Mask and Vaccine Mandates
As business owners, we all want to respect individual rights, but we also need to watch the bottom line. In other words, we need our workforce and customers to stay healthy. Every country is doing something a little different. Here in the United States, President Biden recently announced that all companies with more than 100 employees require vaccinations or regular testing. And in some states, you must wear masks indoors. If you choose to ignore such mandates, please make yourself aware of the financial risks.
Trend 5: Supply Chain Shifts are a Major Threat
Another disturbing business trend the pandemic revealed is how vulnerable our supply chain is to significant shifts in demand. Technically, I guess this isn’t a trend if the problem existed all along. However, after experiencing massive backups at our ports and part shortages due to changes in customer behavior and the U.S.-China trade war, we now know that something needs to change. Couple this with the rising prices we have all been experiencing, and it is downright critical to your survival.
What would we recommend?
Scrutinize Your Plans for Areas of Risk
The financial modeling and budgeting exercises we recommended earlier are invaluable in these situations. They will help you assess your dependencies in search of vulnerabilities. For example, are you too reliant on one supplier for a crucial part? Would a minor increase in costs result in a cash flow problem? Do you have a backup plan if one of your suppliers can no longer deliver? It is important to find and address these vulnerabilities before they become a problem.
Look for Opportunities to Adjust Your Contracts and Diversify
If your suppliers have increased their prices, that doesn’t necessarily mean you must pass those costs along to your customers or reduce your margins. You may be able to adjust your contracts with suppliers to get a discount or better terms. On the other hand, this might be an excellent time to consider a change. For instance, if you rely on imported supplies, this leaves you vulnerable to more than just price increases. Perhaps it is time to look at other options.
Trend 6: Technology is Power
The pandemic made it clear that medium and small business owners can no longer afford to ignore the incredible role of technology. No one has gone untouched – from family-owned restaurants that had to quickly develop an online presence and provide delivery, pick up, or curbside service to mid-sized manufacturing facilities. So, how can you determine what level of investment will increase your capabilities and deliver efficiencies without adding distractions or undue costs?
Selectively Choose Technologies That Will Improve Your Bottom Line
Investing in technology doesn’t necessarily mean you need to become an expert in machine learning (a form of artificial intelligence) or data analytics. Instead, think about your business from your customer’s perspective. What would make it easier for them to buy from you? What would improve your customer service? How can you deliver more value?
Perhaps you need to invest in making your website mobile-friendly and find a tool that will allow you to build a more substantial social media presence. Or maybe, you need a cloud-based solution that will help you eliminate redundancies, reduce costs, and speed up your production. Whatever it is, once again, your financial planning models will come in handy here as they will allow you to see the impact of such investments against the expected boost in revenues so you can plan.
Don’t Skimp on Cybersecurity
As you dig into technology, be mindful of your responsibility to protect your customers’ personally identifiable information (PII). This ranges from simple things, like notifying website visitors of your use of third-party cookies and privacy policies, to protecting yourself from data breaches that will expose you to lawsuits. At a minimum, you will need insurance, intel from your cloud-based providers about how they protect your data, and protocols instructing employees about what they can and cannot share over email.
Trend 7: Policy Changes are Coming
With new leadership entering the White House this year, policy change is sure to come. We have already seen our government roll back Trump-era policies and retreat from Afghanistan while continuing to navigate the pandemic. There is also a renewed focus on mitigating the effects of climate change and resolving problems related to our medical system, education, and infrastructure. Regardless of how you feel about these changes, they are a reality, so what can you do?
Prepare for an Increase in Corporate and Personal Taxes
Someone must pay for the massive debt we have incurred, and since taxes are low in the U.S., we expect some increases. Seek expert advice so you can prepare. Whether this means absorbing some expenses this year instead of deferring them to next year, changing your corporate structure, or some other strategy, you must create a plan to suit your unique situation.
Look for the Opportunities
Changes in policy or the approval of new investments will always create opportunities for some and challenges for others. Pay close attention to what is coming down the line. Would your business benefit from infrastructure spending? What can you do to strengthen your position so you can score a big government contract? This is probably obvious for businesses where there is a direct relation, but if you are tangential to this industry, there will also be an effect on you.
Trend 8: Valuations Continue to Rise
You are surely aware that business valuations are high right now, but why should you think about an exit or capital raise today when you don’t see that happening anytime soon? Because it is never too early to make improvements that can increase your valuation downstream. And because many things that can make a significant impact take time to implement. But don’t worry, it doesn’t have to be a distraction. Here is what you can do:
Start Preparing Today
Many of the things that will make your business attractive to investors are simply good business practices. This includes developing solid financial processes and controls, boosting the value of your products or services, building a strong and reputable management team, and investing in marketing and sales. You are probably working on some of these things right now. However, if you evaluate your strengths and weaknesses through an investor’s lens, you may see opportunities to drive value that you would otherwise miss.
Don’t Forget to Leave Some Ramp
Investors are not looking for companies that have reached their peak performance. Instead, they want to invest in businesses that still have some growth potential. Therefore, don’t feel like you must have everything perfect before you start looking for a buyer or strategic investor. Simply deal with the things that will have the most impact on your company’s value and leave a few opportunities on the table for someone else.
Financial Planning 2022 – The Bottom Line
Staying abreast of the latest business trends is critical as you move through your 2022 financial planning process. But don’t forget to build financial models that document everything that can affect the financial health of your business. This will allow you to spot issues as they arise and to continue making changes throughout the year. And remember, we are always here and willing to help if you run into a jam.