What Are the Top Business Challenges in 2023?

Companies are continuing to tackle economic instability, labor shortages, and geopolitical disruption this year. The question for business leaders is how to achieve growth despite adverse conditions.

CEOs expect a recession.

In March 2023, the Federal Reserve raised the benchmark interest rate again. It is the highest it’s been in more than 15 years, fueling higher lending and debt costs. The cost of materials and supplies, as well as labor, are also rising. With these factors in mind, 93% of U.S. business leaders anticipate a recession in the next 12-18 months.1 Opinions are mixed on how long the recession will last. But 86% of U.S. CEOs participating in the Q1 2023 CEO Confidence Index think it will be “brief and shallow with limited global spillover.”2 No matter how long a recession lasts, businesses must prepare.

The current economic environment doesn’t support a “business as usual” approach. There are five key areas in which business leaders believe they should focus over the next several months. These include cutting costs, managing taxes, adjusting pricing, transforming technology, and cultivating a strong workforce.

Businesses are prioritizing where they’ll cut spending.

Like consumers, businesses must carefully manage cash flow during financial downturns. Cutting costs is an essential part of that. It’s impossible to avoid all expenditures, but some can be delayed. Corporate leaders are looking across their businesses and prioritizing where they’ll cut costs. Among the first to go will be capital-intensive initiatives including mergers and acquisitions (M&A), with 41% of finance executives saying they’ll cut M&A first.3 While sustainability and caring for the environment are important, 39% will cut spending in this area, as well as capital investments in physical networks (32%).4

Companies will wait before making investment cuts in talent and workforce development (46%).5 Many are still struggling with staffing shortages and want to do what they can to keep their best personnel. Employees cite the opportunity to further develop skills and career advancement as key drivers in retention. Some companies are attuned to those needs and will continue spending to strengthen their workforce.

Forty-five percent of executives will hold off on budget cuts to technology that improves efficiency. This hesitation is understandable since finding efficiencies is usually part of overall cost-cutting measures. The question becomes whether a potentially costly technology outlay will erase savings. How long it will take to realize ROI on the investment might also be a concern. But 80% of executives are investing in digital technology in hopes of offsetting economic, supply chain and talent pressures.6

Balancing the need for growth with the investment required is challenging. On one hand companies must develop and enhance products and services, but timing and costs can be prohibitive. For now, some business leaders (37%) are postponing the decision to cut investments in product innovation for growth.7

Tax uncertainties persist.

Concerns with corporate tax planning are a holdover from the current administration’s transition. In 2022, corporate tax professionals cited proposed U.S. tax changes as their top challenge. The majority were focused on federal (43%), as well as state/local (17%) tax implications.8 Another 16% were concerned about global tax reform.9

Business leaders are also pondering tax policy outcomes. According to PwC, 67% are preparing to deal with the business impact of changes to tax policy and regulations.10 Revisions to the tax structure would immediately impact companies at the domestic level – notably raising corporate taxes. Business leaders are also closely following the global economic and political environment for impact on foreign subsidiaries and other interests.

Raising product and service prices is inevitable.

Supply chain issues increased the cost of materials and subsequently reduced inventories at many companies. While they’ve made progress in acquiring inputs, supply and materials costs remain high. Businesses need to counterbalance inflation. Better managing inventories and costs is only half the story. Some will also revisit pricing strategies. Fifty-one percent of CEOs have already raised prices and another 29% plan to do so in the next 12-18 months.11 This is no surprise since, along with materials, companies are also spending more on labor.

Technology and analytics will continue to drive the business forward.

Companies know they must continue to evolve the business. Technology helps to do just that. Simply automating systems and processes saves time and money, increases efficiency, and frees up staff to focus on other business needs.

As always, access to data is key to overseeing operations. Advanced capabilities like machine learning and AI power analytics, provide much-needed insight in a fluctuating economy. Unfortunately, only 35% of treasury professionals say they have 100% visibility of operating bank accounts.12 These types of data blind spots not only limit the ability to successfully manage cash flow, but also open the door to fraud.

The good news is that, where data and technology are concerned, CFOs are aware that big changes are needed. Modern financial teams work closely with strategy, operations, and C-suite members – all with their own data points – to create a roadmap that defines where a company is and where it’s going, including scenario planning. Accenture reports that 76% of CFOs “believe unifying disparate data is vital to achieving business objectives.”13 Comprehensive evaluation of data from across the company enables more precise forecasting, which 36% of CFOs believe will prove challenging in 2023.14

Workforce development remains a top priority.

Talent acquisition and retention will continue to weigh heavily on CEOs this year. In 2022, 54% of CFOs in a Gartner survey saw it as their most difficult task in 2023, above forecasting (36%) and identifying which costs to cut (35%).15

To address hiring needs, employers are carefully listening to what candidates say they want in new roles. They are also adopting creative recruiting strategies like gamification. Novartis, Nestle and Shell are just a few of the companies who’ve successfully implemented recruiting games to attract candidates. The acquisition costs for new personnel are high, so business leaders realize retention is critical. They’re adjusting salaries for inflation, offering remote work, and factoring in time off. However, employees also want opportunities to advance. Companies are answering with upskilling and reskilling, as well as providing opportunities for cross-functional work inside the company.

Every year brings new opportunities and challenges. To achieve growth, executives must confront the aftereffects of a tumultuous 2022 and resolve business problems. They’ll have to effectively manage cost reductions, pricing strategies, taxes, rapidly changing technologies, and a dynamic workforce. It will require expertise, ready access to capital, and a strong partnership to get there.

Contact a Synovus Commercial Banker for business insights and strategic advice you can trust.