The outlook for the global economy in 2023 looks tough. Recently, economists at Bloomberg have predicted a 100% chance of recession in 2023. While this is an extreme position in the market, it serves as a reasonable prompt from our perspective when it comes to thinking about the annual budget for 2023: prepare now for difficult times ahead. The message is clear; the crisis in the global economy is not over; it is not behind us; we have only seen the tip of the iceberg.
Build your budget so there is time to react in a timely manner if results are less than expected. If you miss a revenue target for a quarter you must be able to reduce expenditure or reduce hiring to maintain your EBITDA target – preparation and flexibility are the key to building a budget that is resilient during difficult market conditions.
To be helpful, here are some practical tips for building a resilient budget that can prepare you for the potential stresses of 2023:
Other companies are going to reduce their spending in response to current conditions and this is very likely going to have an impact on your revenues – in light of this you should:
• be cautious with your revenue, new customer and ARR projections;
• reconsider your revenue growth rates and expansion plans may need to be put on hold, and
• expect customer churn rates to increase.
Careful cash management will be key, including:
• plan for at least 24 months of runway;
• take into account exchange rate volatility;
• high interest rates on time deposits in both NIS and USD are an increasing reality – make sure you manage your available cash deposits across a range of time deposits (weekly, monthly, bi-monthly, 6 months, etc.); and
• focus closely on accounts receivable and collection to minimize any bad debts.
Financing, both equity and debt, are going to be increasingly scarce and expensive. Time to finance is increasing – previously this ranged between 3-6 months; now this is going to take substantially longer. You may want to:
• reconsider the timing of raising your next round – even if you have a runway for the next 24 months, it may nevertheless be useful to raise additional funds opportunistically, if possible;
• start the financing process as soon as possible;
• consider a venture loan – if you have an existing agreement, consider to draw down the funds;
• be mindful of increasing interest rates in existing loan agreements (4% a year ago but now 8-10%) – request new loan schedules including the updated rates and budget accordingly.
The full support of your board will be key in managing any mishaps in the coming year. Make sure that you keep in close and constant contact with your board; get them involved more than usual and ensure they are not surprised by any bad news.