**Update Published July 1, 2023: Q3 report on the economy and recession outlook for 2023.**
While no one can predict exactly how 2023 will affect small businesses, current trends indicate we’re in for a rocky ride. Here’s what you can expect to see in the upcoming year.
- 2023 is shaping up to be a tough year for business, both big and small, according to many financial experts
- Hiring available, qualified employees and keeping up with business administrative requirements were almost 50% of the total concern of small business owners
- There some concrete things every business owner can do now to better prepare for the future
You sit back and contemplate: should you buy that property to expand? Everything seems to be opening back up. Should you spend that money on advertising to raise brand awareness for your business? And, just how are consumers faring these days, in general?
Are they ready to buy? Tapped out?
As a business owner, these types of questions often run through your mind throughout your day.
Starting a business, it should be said, is no easy feat. Keeping one going and thriving– especially now– is even tougher. While running a small or even medium sized business will always have its challenges, 2023 is already being forecast as a mountain to climb.
Let’s take a look at concerns and issues facing small businesses in 2023 and what you can do to prepare.
Challenges and Problems Facing Small Businesses in 2023
While it probably goes without saying, making money is essential to the survival of any small business. While many factors are within your control, some aren’t. Let’s start by taking a look at how the broader global economy and consumer sentiment have been shaping up of late.
According to the National Association of Insurance Commissioners’ Year-End Capital Markets Update for 2022, investors worried about the global economy’s resilience in the face of rising geopolitical risk, a sudden spike in oil prices, disruptions to supply chains, and inflationary pressures:
- According to data compiled by the National Association of Realtors, home sales dropped 35.4% between November 2021 and November 2022.
- The Federal Reserve (the central bank) raised interest rates by a total of 425 bps in 2022. After hitting a 40-year high in June, inflation has started to moderate, but financing is becoming increasingly costly.
- Throughout the world, stocks have fallen significantly; in the United States, the Standard & Poor’s 500 index (S&P 500) entered bear market territory in the middle of the year, only to recover slightly and end with a negative YTD return of 18% in the middle of December.
- Bitcoin, the world’s largest and foremost cryptocurrency, is down over 75% from its all-time highs, and the FTX crypto exchange collapse and resulting scandal has rocked the entire crypto sphere. Recent upticks have it around $23,000 per BTC.
- Concerns about slowing global economic growth and the resulting lower demand for oil and fuel have contributed to a drop in oil prices from March’s eight-year high of $123 per barrel to the current level of $73 per barrel. Affordability of gas has not spurred economic activity and retail sales, however.
- Group life insurance actuaries are reporting record excess mortality in traditional prime working age categories in 2022.
- Most small businesses that fail did so because of lack of market demand and running out of capital investment and cash flow.
Record money printing by the Federal Reserve matched with lockdowns of sectors of the economy have caused massive disruptions in normal business activity, the results of which we may be seeing for years to come.
Small Businesses Should Prepare for Financial Challenges Like a Recession Now
Many economic analysts worry that a recession has already begun or is about to begin. To put it simply, a recession is “a major fall in activity across the economy that lasts for more than a few months” (and is officially declared by the National Bureau of Economic Research).
Many more people on the street get the feeling a recession is already here and we’re living in one. Almost no one can deny the real impacts of inflation that are finally starting to show up in common everyday consumer goods and commodities like fuel, rent, and food.
Veterans who receive a monthly disability payment from the U.S. Federal Government recently saw an increase of over 14% in their monthly check. This indicates the government is anticipating more inflation in the long run, so they’re cutting the checks and paying out now to get ahead of the public relations disaster.
But it doesn’t fix the core problems that we’re all dealing with in our day to day lives.
Preparing Your Small Business Marketing and Management Plan for 2023
You can prepare your business in the following ways:
- Focus on one customer. This is where the majority of your business comes from. Identify your core customer profile and focus on serving them best. That means better than you did yesterday, and better than your competition will tomorrow. Loyalty means everything, so build it now before the storm comes.
What does your customer need and what might they benefit from, using your forward-thinking assessment of the product or service environment?
- Deal with the supply chain issues now. Supply issues affect the entire economy. Oftentimes it results in the ability to acquire key components among shortages and wild price swings.
Stock up on discounted inventory you know you’ll need now, and always keep your customers in the know as you see trends affecting business. They’ll appreciate your transparency
- Turn lemons into lemonade. That supply chain issue– can it be fixed by bringing production closer to home or switching out for an alternative? Do you really want to do business with a country with serious human rights abuses? This could be the perfect opportunity to set the example for your competition, improve the customer journey and brand experience, and better your own your country.
Customers feel more loyal to businesses with a real message and mission statement. They don’t need to be bludgeoned to death with corporate -isms and empty platitudes.
- Trim the fat. During times aplenty, we can let things that erode our bottom line get the best of us because it might just be too complicated to get rid of something or too time-consuming when you can focus on making real money. But downtime is the perfect opportunity to consolidate processes and find ways to automate for savings.
Do you really need to run your own warehouse with inventory management the traditional way? Or could you find a 3rd party shipping and storage warehouse network within the U.S. and your area of sales and automate it?
Win: Proactive Financial and Time Management for Small and Medium-Size Businesses
Most business owners know when they’re in the black, breaking even, or starting to pay money just to be in business, at a holistic level. For others, it’s not that easy. This is because, in the context of a small company, you are more likely to be an expert in your field than in say, accounting.
Profit margin analysis and cash flow management are specialized talents that not everyone possesses.
But planning your moves on paper using figures may expose opportunities and areas for elimination and savings. That means getting and staying organized. This will remain important with consideration to scaling your business when the time comes.
You can consolidate and automate your finances, employee time tracking, payroll and other records, government compliance and taxes in a single suite to save time and money, and maybe even find a tax break somewhere to boot that makes you even more money.
Check out products like Gusto.com that help you save money and time managing your business operations and records.
Having an automated system in place that saves you the money and trouble of hiring an accountant or lawyer could mean massive savings in the long run, and it might take minimal research and due diligence on your own part to confirm.
Setting a Vision for the Future Success of your Business
If you’re like most entrepreneurs and business owners, you only want your business to be as small as it actually needs to be. No one’s in the habit of turning down profits, and that means keeping your eye on the ball long term.
Life is a marathon, and you’ll want to master these concepts:
- Time management – You only have 24 hours in a day, and you’ll need to sleep enough to stay fresh and keep going. After that, you have even less. Prioritize your must-dos, double down or leverage your winners and cut your losses as you go. Spend your time on what’s working.
- Avoid burnout and fatigue – Are you still putting in long hours into your own business? If you’re working in your business more than you are on it, you may be setting yourself up for burnout. You don’t want to get tired of the daily pace of operations where your own work-life balance and achieving your savings goals are compromised.
- Use tools, and choose the right tools – Once again, automation pays real dividends. From choosing the best workflow and project management software to keep everyone at work on the same page and eliminate miscommunications and redundancies, to getting notified when your inventory goes below a certain threshold– you’ll want to get rid of those potential failure points now.
With the abundance of software, I’d recommend only going with apps that can give you useful data related to the time it takes to complete tasks and other automated insights while keeping you compliant with all the administrative requirements of being in business and having employees.
Small Business Problems: Monitoring Employee Performance and Rewarding the Right Things
What would a business be without its employees? Most businesses have a human element to benefit from and in reality, reliant upon. That makes it an element to manage and contend with.
Labor concerns have consistently been top of mind for small business owners, with fewer small businesses hiring or planning to hire in the last 3 – 5 years, according to the National Federation of Independent Business in its December 2022 survey.
CEOS and Owners: Set the Bigger-Picture Process Goals by Setting the Example Early On
It all starts with you: the culture, the know-how, the vision.
CEOs and owners often hire middle managers to watch the lower-level employees so they don’t have to worry about someone stealing company time or money. However, middle managers can also create a negative feedback loop.
Middle managers are often content as long as everything moves at an acceptable pace, but they can also thwart new talent and voices with a fresh, creative approach to remain the perceived local expert on all things work-related.
An adversarial relationship between supervisor and employee is a great way to stifle innovation and growth within the ranks.
A Culture of Follower-ism Creates a Culture of “Quiet Quitters”
When people see that there are certain norms they can get away with, or unfortunately, a status quo they’re expected to support or else lose their jobs, you’re going to create quiet quitters. People will give you the bare minimum effort for a paycheck twice a month, even if it’s to enable bad management simply to survive on a personal level.
When choosing supervisors in your business to manage the most important day-to-day activities, do not seek out someone that is a total follower. Better are the wounds of a friend than the kisses of an enemy.
Labor Issues: Best Practices for Hiring and Retaining the Best Talent for Your Dollar
- Pay them right. You should be willing to pay your employees a fair market price that truly values their future. Don’t text or email them after 7 pm. Doing so will only show that you don’t value employee space and freedom. Don’t expect free work.
Hold your employees more accountable with automated time tracking and payroll software, to ensure you’re only paying for billable hours as well and preventing time theft.
This behavior, especially by the CEO, all but guarantee eventual employee burnout and “quiet quitting,” where everyone does the bare minimum because doing otherwise would not result in any substantial benefit.
- Train them right, the first time. Make sure your employees are competent and set up for success. This starts with clearly communicating expectations and making training as easy to follow as possible. This means getting rid of incompetence in the workflow, which is not a painless process.
- Eliminate organizational toxicity. Keep an eye on legacy employees. They may pose a challenge to bringing on or maintaining superior talent, as legacy staff’s own values about company culture or office norms could become an obstructionary backdrop that does anything but foster the people.
The average cost of replacing an employee, even at a lower level, is over $3,000. In addition to hiring and training the right people, keeping them on board is crucial. When an employee leaves, not only do you lose their contributions to the company, but you also have to devote resources to finding and hiring a replacement.
To hold everyone accountable for tracking time, taking breaks, clocking in and out and making it easy for everyone to see what’s going on with their health insurance and tax forms, consider Connecteam.com. Automating certain things like clocking out can take the stress off you, the office manager, and your employees.
Making Customer Service One of Your Top Business Goals
Getting back to the basics is important. You provide a product or service that people either want or need. All you have to do is find the best way for both of you to accomplish that exchange of value at a sum value greater than its explicit monetary value.
That will truly be a win-win for everyone, including your very market, at no extra cost to you. It’s also how you build a recognizable, reputable brand. Treat everyone as you’d like to be treated. But once you’ve got a basic idea of demand, it’s time to dig a little deeper, then customize your approach to each customer.
Knowing who you’re trying to reach with your marketing and where you need to reach them is crucial. Narrowing down your target market(s) can give you a great starting point. Cross-channel marketing gives you the best chance of reaching your audience no matter where they’re spending time.
Do you have a good, mobile-friendly website that’s easy to find and shows up for relevant keywords for your area or target customer demographic? Why not run a video ad on YouTube? There’s a good chance you’re being seen by the same person across different channels.
They’re all subtle reminders that you’re still there if they might happen to need you.
Are you creating a trustworthy and predictable customer interface/purchase process?
The goal is to provide an element of predictability and familiarity with customers regarding how they experience your brand. People are going to see a lot of orange, yellow and red when they enter a McDonalds, but this only works in its favor.
You must over-deliver with a superior product and service, becoming familiar in the hearts and minds of your customers.
Lead Generation Capture
It sounds predatory but it’s not that bad, actually. If someone visits your website, find a way to market to them in the future, regardless of what they decide today.
This could be through an automatic AdWords retargeting ad on another website. It could be an email that goes out automatically upon signup from the site visitor in exchange for a benefit. It might even be an occasional text/SMS that goes out reminding people of new products and coupon codes to build loyalty.
Don’t feel bad about trying to get their email. You’re actually making their life easier. People are busy. How many times have you pulled up something on your phone only to be distracted away from what you were doing?
Think of it as necessary and doing them a favor, then whatever you do– don’t spam their inbox! Look at email open and conversion rates to guide you along the way.
If you’re B2B, make it easy for your distributors and buyers in your own network to know what’s going on and be reminded of why they do business with you.
Administration and Compliance: Licensing, Taxes and Changing Regulations
Thankfully, there are ways out of this predicament. Depending on your situation, outsourcing any or both tasks could be the easiest option. One choice is to hire help with administrative tasks like bookkeeping and payroll.
Using commonly available solutions is both faster and cheaper. Many affordable bookkeeping services exist nowadays, ready to adjust to your specific requirements. Accounting, budgeting, bank reconciliation, financial statements, and more are all services they offer.
Payroll processing, withholding services, employee payment options (including direct deposit and check-cutting), and more are all things that many different payroll providers will offer.
Services that manage your payroll also tend to provide all-inclusive bundles that can help you with other issues. Examples of HR-related features provided by many are time-tracking support, pre-made job descriptions, and connections to external recruitment databases.
When it comes to business compliance, a payroll services provider can help with things like employee handbooks and online sexual harassment training.
Balancing Your Company’s Quality and Growth
Know when to scale and when to hold off. If you’re not considering your own work/life balance, there could be consequences for everyone.
Building and Scaling Your Business at the Right Time On Your Own Terms
Only you can eventually determine the right amount of income and tax bracket for yourself, how to file your business, and if you have the capital and a hungry market for your next move upward and outward. Just make sure to cover all your bases and plan ahead.
Is the risk worth the reward? How much risk are you comfortable with and what would be the outcome of either doing it or not doing it?
Avoiding Founder Dependence – Creating a Business Contingency Plan
The goal of every business should be to grow your business to a point that you could completely stop working, walk away and still take a salary forever, if you wanted to.
If you’re working in your business but not on it, then you may not be planning for the future. What would happen if you had to spend a week in the hospital? What is your continuity of operations plan? That’s where the right business insurance can help you.
You need to plan on scenarios where you may not be available to run your business. Or maybe you’d like to be able to give feedback and have a say at meetings, but you’re fine with letting others run it.
The rising cost of insurance in 2023 continues to be a challenge for businesses and regular people alike.
Conlusion: Overcoming Problems Faced by Small Business Owners
Ultimately, thinking big so you can better protect yourself and your family and have a “stop” button should you ever want to get off this ride, but be taken care of for life, is a time-proven blueprint for success. We don’t plan to fail. We fail to plan.
And hopefully, it’ll result in a retirement or never-ending vacation/travel lifestyle you’ll be pleasantly surprised and excited about.
Frequently Asked Questions – Challenges and Problems for Small Businesses in 2023
Maximize your marketing budget by getting, retaining, and nurturing leads. Work on your business, not in it. Don’t waste time hiring the wrong people because it costs around $3,000 – 4,000 per employee to re-hire. Automate your business licensing, compliance, employee payroll and time tracking, workflow management, and inbound marketing when possible. Don’t get burnt out.
One of the top recession proof products to sell in today’s economy, replete with supply chain disruptions, is auto parts. Also, consumers will continue to spend on food and basic items, as well as tea and coffee. Marketing to a specific niche, whether it be for clothing and attire or camping equipment, may result in greater success, rather than a general store marketing approach.
With the enormous lack of homebuying power by an increasing percentage of American renters, opening a laundromat could also be a safe bet if you were able to secure financing to purchase equipment. Because people will be less likely to take out a loan to buy a new car, they might drive their old one longer and will need repairs, which is good for auto repair shops out there.
Digital marketing and cloud based technologies may also do well if they provide overwhelming value, savings, or additional business for their B2B clients, as many business owners will be looking for a way to overcome a recessionary atmosphere by cutting costs and refocusing their efforts and budgets.
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