Unless your industry was one of the few that were helped by the 2020 pandemic, your small business has likely experienced financial and other difficulties and may still struggle. With all the economic upheaval, social movement, government programs, executive orders, and administrative changes still going on, it may be difficult to estimate your company’s 2021 budget needs and expectations.
Tips to Prepare for Best- and Worst-case Scenarios
There is always an amount of uncertainty when budgeting, even in “normal” years. Budgets should still have room to adjust for best- and worst-case scenarios, though the current unpredictable economic environment forces all businesses to consider the extremes when planning their 2021 budgets. Here are some ways to keep a level head and be prepared for whatever may come:
Determine 2020 Company Status and Performance
In any life situation, you cannot go forward until you firmly establish where you are and how you got there. You’ll need to assess aspects of your company’s performance in the past year and the goals set or accomplished. Right questions to ask include:
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- Were your products or services still in demand during the pandemic? Will they be after the pandemic ends?
- Review your investments and expenditures for 2020 and assess how effective they were for growth.
- Compare actual sales for 2020 with what you’d expected, based on 2019 sales. Try to project them for 2021.
- Do your customers know if/that you are still in business? How has their engagement changed?
Rebuild & Reorganize
Refer back to the questions you asked regarding your company’s 2020 performance and consider how you might need to rebuild what was lost (if it’s still relevant) or reorganize or redirect focus for changing or developing new products and services. Consider your online presence and take steps to build that.
Identify and Diversify Income Sources
Income sources include profits from the sale of goods and services and investments, loans, and government programs. It’s essential to make sure you have a diversity of profit and plans to develop investors and shop for loans. Make use of any government programs that are relevant to your company and industry. Even in the best of times, don’t put all your eggs in one basket.
Save Where You Can
While reassessing your company focus, you’ll need to add new expenditures to accommodate legal requirements or public mandates regarding the pandemic or other types of services. At the same time, don’t forget to take advantage of any savings you can for expenses you no longer need. If your employees started working from home, do you need that large office space anymore? Look into your insurance policies, utilities, and other professional services and adjust for new circumstances.
Multiple Budgets
"Hope for the best and plan for the worst," is a saying that applies here. Coming up with a worst-case scenario can help prepare you for another uncertain year. Create a budget for a lousy scenario as well as one based on your best-case scenario, including growth, building, and more ambitious goals. This is one way to help yourself be ready to pivot in either direction as necessary during 2021.
Help with Your Business Budgeting for 2021
Cautious optimism is a time-honored business practice. Following these suggestions can help your company avoid paralyzing fear while budgeting for 2021. It’s best to consult with your CPA while going through the steps to answer questions about the details. Myrick CPA can help you move forward with confidence through uncertain times. Give us a call or contact us online today.