We’ve already talked about a host of considerations for 2023 planning: economic factors, customers, product. Now it’s time to consider your spending — specifically how staff and vendor costs, as well as investments, will play into your full plan for the year.
When it comes to staff costs, start by thinking about any pay rises coming out from your 2022 performance review process. Don’t forget to factor in turnover, which will add to recruitment costs. While you may not know who will leave, you should anticipate that some number of employees will end up leaving, so you will have to factor in recruiting and maybe even a sign-on bonus for a new person. The cost structure is different from just having someone continue on. Base your cost assumptions on what happened during the past year: If five out of 100 staff left in 2022, then 5% is potentially a good baseline number. Also layer it in with some qualitative assessment. Ask department heads who have employees reporting to them to get a sense of who or how many they think might be a risk; people rarely leave extremely suddenly and unexpectedly. Using those two inputs, you can come up with an educated assumption.
Also consider building into your plan a cost-of-living adjustment, especially for 2023, given inflation. It lets your employees know you are aware the inflation situation is going on, and that you are able to do something to help them.
If you haven’t already done so, this is a good time to review vendor contracts. For any multi-year contracts you have, consider if it is coming due or ending this year. Build into the plan any renegotiation you are wanting to do, hopefully in a favorable way: If you’ve grown and you’re spending more in total, you may be able to lower your per-unit cost with a particular vendor. Many businesses wind up spending on vendors they don’t really need anymore, so looking at your contracts will help highlight any that you can end relatively quickly. It’s a good way to save money on low-hanging fruit.
With these steps, you are getting a really accurate plan on how you expect the year to turn out — not just in terms of top-line growth and revenue, but also bottom line, because you’ve really taken a look at your costs. That will be important for having an accurate cash position in your plan. In fact, it’s even more important in 2023, because access to capital is really low. Getting equity investors or even getting loans from banks is much harder now than it was 18 or 24 months ago. There’s a lot of extra risk associated with running out of cash, so making sure you have a plan where you know, to a good degree of accuracy, if and when you’ll run out of cash is even more important than it ordinarily would be.
If you’re making an investment in a particular area, whether it’s marketing or product or something else, it’s always good to have a sense of the ROI. An investment should never be one-sided. Your understanding of it should also have some assumptions that let you know when you will expect to see the fruits of your labor. While you’ll never know for sure, prioritize what you would expect to come out of it, so you can gauge whether this is the right investment right now, and account for it in your plan.
If you’re unsure how to estimate your spending costs and investments or how to incorporate them into your 2023 plan, please reach out to me. I’m happy to help.