5 Essential Business Lessons From 2022: What to Focus On in 2023
December 10, 2022 |
The C2FO Team
As you look ahead, here are five perspectives from the C2FO team.
2022 was a challenging year for many companies, but the last 12 months also leave us with several important business lessons for 2023. We asked several members of C2FO’s leadership to share their core insights and learnings from the past year.
Instead of borrowing capital, look into lower-cost alternative funding solutions
Raffaele “Raff” Sadun, chief financial officer, on business financials:
Smart businesses should ensure they have adequate access to working capital so they have the resources necessary to respond to any setbacks or surprises.
I would encourage those companies to consider alternatives to traditional loans, though.
In the US, interest rates have increased by 375 basis points in 2022, and they will probably continue to rise in 2023. As a result, the cost of borrowing is much higher than it has been over the last several years, and it’s taking longer to secure loans, if you can even arrange borrowing now.
Dynamic discounting solves a lot of these problems. With this model, businesses can encourage their larger customers to make early payments in exchange for a discount. The businesses receive an influx of cash, and the discount will almost always be lower than the cost of interest on a loan.
Not only is dynamic discounting less expensive, it’s also faster and more reliable. With C2FO, for example, payment can land in your bank account in as little as two days, and you have much more control over when and how you participate. And because you’re being paid money that you’ve already earned, there’s less risk that you will become overextended.
Make sure you know your decision-makers — and what they want
Cindy Rock, senior VP of inside sales, on customer insights:
Thanks to the Great Resignation and other changes, there is an excellent chance that your customers and your prospects have a completely new set of decision-makers.
So, even if you think you know who’s in charge, are you sure? Targeting the right people can have a huge impact on your sales and customer retention efforts. It’s worth taking the time to reach out and confirm that you’re trying to reach the correct audience. And remember to update your CRM accordingly.
While you’re checking on decision-makers, this is also a good opportunity to make sure you’re still segmenting your customers and prospects correctly. Ask your customers about their biggest challenges and needs because those may have shifted, too.
For example, after dealing with supply chain breakdowns over the past year, customers that previously valued price above all may have different needs now, given the changing environment.
If your buyers’ needs have changed, you should also review your messaging and channels. Are those still relevant for the people you want to reach? Are all customers worth the same in value? Should your targeting strategies be different based on needs and value?
Keeping good records and notes in your CRM is critical as the final step. If it's not documented — it didn’t happen!
Offset supply chain cost increases and minimize financial risk
Colin Sharp, chief sales officer, on procurement strategies:
Multiple macroeconomic factors are, of course, affecting corporations and their supply chains. Supply disruptions are leading companies to maintain higher inventory levels, and rising inflation is increasing the cost of working capital needed for that higher inventory. Lower credit risk cover has reduced credit appetite from the banks. As a result, more corporates are reporting increased cost and risk pressure.
At the same time, corporations are reporting that their long-standing supply chain finance (SCF) programs are becoming more challenging to operate due to the inflationary pressures. More credit is needed to sustain those programs, but many banks are reducing their credit appetite. The result is a difficult situation for companies whose SCF programs are entirely reliant on a single bank and its technology.
To offset cost and risk pressures and de-risk their supply chain finance, the smarter enterprises are doing two things:
Adopting a dynamic early payment program. With early payment platforms like C2FO’s Dynamic Supplier Finance, suppliers can accelerate payment using funds from a buyer's own balance sheet or from multiple banks. Typically, this will provide a lower cost of funding for the supplier (saving financial supply chain cost), and the discount that they offer in return for early payment will reduce a buyer’s cost of goods. At scale, this large volume of small discounts can help significantly offset rising costs.
Using an “agnostic” supply chain finance partner — a platform that allows you to use funding from multiple sources, including your own balance sheet. (This is how C2FO’s platform is designed to operate.) That way, the corporate has several different ways to access the funding necessary for its SCF program, so it can meet its own needs and those of its supply chain.
Be ready for a potential downturn in 2023
Chris Atkins, president of capital finance and capital markets, on current markets:
Based on what we’ve seen this year — including narrative from those in the supply chains of the largest companies on earth — a recession is likely in 2023. What it will look like and how long it could last are still unknown, yet most analysts are forecasting a relatively short and shallow downturn, assuming global central banks thread the needle of lowering inflation while not squashing employment.
So how should businesses prepare? Building up your cash reserves and liquidity sources should take priority, so that if your profit declines for a quarter or two, you still have enough in cash to pay your essential expenses. A quick way to improve your cash position is to accelerate your outstanding receivables, especially through C2FO.
That’s an easy Plan A. But you should also have a Plan B, C and D if necessary.
If the future goes differently than you planned and you need additional capital, where would you go? Ideally, you have an existing relationship with a lender or funder who understands and believes in your business. If you don’t have a relationship like that, start building one before you have a need.
You should also take a closer look at your spending, though be careful about cutting programs and departments that help generate revenue. Think twice about job cuts, too. If the recession really does turn out to be short, you may have a hard time replacing staff that you cut earlier as it appears employment may remain fairly tight.
Solving our most challenging problems requires a redesign of broken systems
Sandy Kemper, founder and CEO, on long-term economic growth:
During the 2022 annual meeting of the G20 and B20 in Indonesia, C2FO was recognized as a way that governments “can make a tangible difference toward supporting sustainable and inclusive long-term economic growth” in order to help fund the cost of global carbon-neutral solutions by 2050.
Without systems-based thinking to redesign antiquated and inefficient global processes and flawed operating systems and beliefs, the world will not be able to fund the USD $200 trillion or so needed to pay for a carbon-neutral future. Neither retail consumption through higher prices, nor higher taxes will be acceptable or sufficient, but radical redesign of broken systems could.
At C2FO, we are focused on global working capital systems and the USD $4 trillion to $6 trillion drag they cause on the world's annual GDP, but there are myriad additional compelling opportunities to redesign. What are some of the other major systems and operating structures you think should be reconstructed anew?
The bottom line on 2022’s business lessons
Nobody can predict exactly what the new year will bring, but you can position your team for success by remembering these business lessons: having a ready supply of working capital, understanding your customers, and remembering to think about — and challenge — the big picture.