Konstantin Dzhengozov and Robbie Hadfield of Payhawk
Konstantin Dzhengozov, Payhawk Co-Founder and CFO
Zero-based budgeting will dominate, and fintech will win
The party’s over – that’s the tagline for 2023. Cheery, I know. We’ve spent the past decade or so being spoiled with money as a free resource. If you had a wacky idea and could get people excited, you’d get investors. Efficiency and fundamentals weren’t viewed as important as long as the top line was growing. But in the face of a shrinking economy, things are changing – and investors and budget-holders are sobering up.
While investors will keep tight hold of their funds until the recession is over, companies will likely focus on zero-based budgeting in 2023. ZBB isn’t a new philosophy, it’s been around since the 1970s, but it’s very likely to rear its head again. The idea of zero-budgeting is to keep companies from spending money they don’t have. In such a system, every spend will be scrutinized to ensure there’s good ROI and every facet of future budgets will need to be justified too.
There’s one winner here — fintech. All components of a smart fintech stack suddenly become ever more important. Companies turning to zero-based budgeting, will need real-time insight into their total spend. Payment and fintech companies will succeed, and companies of all sizes demand even greater visibility and control of their spend.
M&A activity will increase
Although businesses will mainly conserve funds for post-recession spending, I believe that mergers and acquisitions will play a significant part in the CFO agenda of 2023. While company valuations have been increasingly high over the past ten years, they’re falling. Many will struggle fundraising and don’t have the cash resources to sustain their business, which is set to create myriad M&A opportunities for larger, cash-rich companies. We’ll no doubt see consolidation across the board, not just in fintech, healthtech, and other parts of the technology sector, but in all areas of the business.
Companies with the means would do well to prioritise M&A if data from the 2001 recession is anything to go by. A PwC analysis showed that those that made acquisitions had a 7% higher median shareholder return than their industry counterparts one year later.
Crypto is dead…for now
No one’s going to touch crypto in 2023, as last year’s crypto winter continues. Stories like the collapse of alleged fraudulent cryptocurrency exchange FTX have outlined some of the many issues that come with it.
There’s hope for crypto in the future, though, if regulation can be implemented to make it safer for investment. We’ve already seen progress in this area, with the EU’s Markets in Crypto-Assets Regulation and the UK’s Financial Services and Markets Bill both potentially coming into force in 2023. I wouldn’t be surprised if we see even stronger controls emerging and being enforced later this year.
Robbie Hadfield, Payhawk Solution Engineer
Automation will allow for the reallocation of resources
With tightened budgets, companies won’t be able to increase headcount or backup functions. With this in mind, I’m expecting to see reallocation of existing resources to new activities – and automation picking up the slack. Using technology to carry out transactional activities will allow staff to focus on higher value work. For instance, the traditional Finance Manager might move into more of an FP&A role that analyses costs, budgets and variances – particularly important in recessionary periods like this.
CFO’s will have more widespread power
Efficiency is the word on everyone’s lips in 2023, thus every cost will be reviewed in depth and we’ll be constantly challenged to prove its business case. It only makes sense, then, that the CFO will be given more power in governance, particularly in the buying process. They’ll be in the room for decisions where previously they might not have been – when discussing marketing spend, for example.
The valuation of intangible assets will be a huge audit risk to the technology space
The economic downturn will lead the Big Four audit firms to put intangible assets under much greater scrutiny, leading to significant mark-downs on impaired assets. This will have a huge impact on the losses we’ll see on tech company P&Ls.
Investment in new markets will be more phased
Companies will continue expanding into new markets, but will do so in a more gradual manner than in previous years, in a better economy. Incubation periods in which businesses test whether they want to invest in a region will require shortcuts to drawn-out processes such as opening a bank account and setting up a legal entity. This will give rise to more Employer of Record, Professional Employment Organization and fintech payment solutions, which can get the job done much quicker.
