Budgeting for the New Normal
No one in 2020 had a crystal ball that could predict so much economic, social and political upheaval as we saw last year.
What about 2021? How can you plan for the new year when so much has changed? We’re all just getting used to curbside pick-up, remote learning, virtual meetings and WFC (Work From Home)—getting business done in a different way.
With the new year comes an opportunity to make a fresh financial plan. Shake off 2020 and answer these questions as you create a business budget for 2021.
#1 How did the pandemic affect your business?
If you experienced growth—seize the moment.
Let’s say your sales grew in 2020. It’s a good idea to shift budget line items so they support more growth in 2021.
- Reallocate money to fund new opportunities. Take budget items that have been sidelined and put the funds toward expenses that will help your business pivot. For instance, if your sales force can’t travel to visit customers right now, take the money normally spent on mileage reimbursement and spend it on social media marketing instead.
- Consider a bank loan if you anticipate necessary staff increases or expanding needs for manufacturing materials due to sales growth. You don’t want to have to scramble for financing at the last minute. Loan interest rates are at a record low now and an increase in your cash flow could become critical to avoid losing sales.
If you experienced a sales decline—fall back and regroup.
If sales have been tight, pare down expenses while you wait for your industry to recover.
- “Definitely avoid large purchases right now,” says Christine Graham Wells, CPA and partner at accounting firm Brockway Gersbach Franklin & Niemeier in Temple, Texas. Even if you have the cash on hand to invest in new equipment, hold onto it as your short-term emergency fund.
- Consider shrinking your production budget—think about ways to accommodate customers with a more-limited line of products or services instead.
#2 What pandemic-related challenges will require extra cash?
We all want to see the pandemic in our rearview mirror but, realistically, its effects will be felt throughout 2021. Consider what pandemic-related expenses might arise in the near future that will require cash flow.
How do you get your products or services into customers’ hands?
- If shipping products has become your only alternative to make a sale, reallocate expenses from the cost of maintaining a storefront or showroom and put them toward increased shipping costs, like packaging and delivery services.
- If customers can still come to you, budget for the cost of increased cleaning supplies and services. Products that offer safety for your customers, like plexiglass shields, will be worth the money.
- If your team must work remotely, budget for software and hardware purchases. Money that used to be spent on team lunches can now be spent on Zoom accounts and internet expenses instead.
#3 Where will you be on taxes?
Once you and your tax-preparer finalize your 2020 tax return, use those numbers to estimate what taxes you’ll encounter and must budget for in 2021.
Programs like the Families First Coronavirus Response Act (FFCRA), passed in March 2020, required some businesses to provide things like paid family and medical leave, but it offered business tax credits too. Forgivable loans offered by the SBA’s Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) were (and are still) welcome assistance. Take a close look at what estimated tax payments you will likely need to make this year, factoring in government relief programs.
The U.S. Chamber of Commerce is a good resource for more information on how legislation affects business owners.
For more guidance, look to a CPA who can help you navigate your 2021 budget-making decisions and decide how to spend your resources wisely. If you have questions, we’re here to help.