In 2023, businesses face significant challenges, including rising interest rates and ongoing issues from 2022. To navigate these hurdles, companies must conduct comprehensive financial analyses and adjust their forecasts for 2023 and 2024. The shift from pandemic-related concerns in 2020 and 2021 to supply chain disruptions in 2022 has evolved into challenges related to excess inventory management, working capital, and the impact of rising interest rates in 2023.
Despite discussions about declining inflation, the August 2023 Consumer Price Index (CPI) and Producer Price Index (PPI) indicated otherwise, raising concerns about inflation, interest rates, and the possibility of a recession. This discrepancy is attributed to increased costs since 2020, exacerbated by government stimulus funds that temporarily masked underlying issues.
For instance, a $100 million company facing 20% cost increases without passing them on to customers may see an $18 million drop in operating income. The shift in interest rates from 0.04% in May 2020 to 5.3% in August 2023 also impacts companies with debt, potentially leading to significant EBITDA losses.
To address these challenges, businesses must meticulously assess their financial standing. The process begins with a thorough financial analysis, considering stimulus funds’ impact, pandemic-related costs, contract evaluations, cost assessments, automation opportunities, profitability analysis, and working capital management. Subsequently, forecasts for 2023 and 2024 should be adjusted based on the analysis, leading to a more informed performance risk analysis that identifies target performance levels and potential outcomes.
In sum, businesses must proactively analyze their financial positions and adapt their strategies to cope with the changing economic landscape and evolving challenges.