Addressing the Complexities of Business Budget Planning for 2021
Uncertainty has always made business budget planning challenging, but 2021 comes with even more unpredictable variables than usual. That means there are more considerations to bear in mind as you lay out your strategic plan for the next 12 months, allocate resources and estimate revenue and profits.
Many global factors and market dynamics are leading to a lack of clarity on the economic front. New vaccines have emerged to help the world battle a raging pandemic, but it's unclear when enough people will be vaccinated for societies to return to some degree of normalcy.
Likewise, it's hard to accurately predict how quickly the global economy and supply chains will improve—not to mention what kind of stimulus or other means lawmakers will use to help millions of Americans return to work.
Changes in the way many people shop and work can also affect forecasts. E-commerce has soared since COVID-19 restrictions began, and retailers, grocers and other businesses can't yet predict if that behavior will continue post-pandemic. Meanwhile, many companies that have allowed employees to work from home don't yet know how many will want to stay there. A largely remote workforce could generate cost savings.
Business budget planning
COVID-19 is affecting industries and entities differently, and there isn't a rule book from the past about how to create a budget plan for a business during such pandemic-driven volatility. Still, your current and pre-pandemic financial data can help guide your efforts. Take a deep dive into recent balance sheets, income statements and cash flow statements. They can help you address key issues, including:
- Should you be more conservative or aggressive in your revenue projections?
- What measures can you take if you run into trouble maintaining cash flow?
- If you're in a position to plan for growth, are there expansion opportunities you can explore based on new market dynamics?
- Will you seek financing to help you achieve your objectives?
- If you changed your business model or created new revenue streams to meet changing consumer demands, will you pivot back post-pandemic?
- What pace of hiring do you expect?
- How will your current expenses, including raw materials, rent, business travel and marketing, vary after the pandemic subsides?
With so much changing by the day, a fixed budget may not prove useful this year. Instead, consider creating a rolling budget that you can reevaluate monthly or quarterly. This approach allows you to quickly course-correct based on how you're performing against key metrics. You won't be locked into a budget based on static assumptions that can be dramatically off the mark.
You may also find it helpful to create a few budget versions based on different scenarios. While COVID-19 restrictions continue to be lifted, it's important to not only assess the real-time impact this is having on your business and the economy, but what the new normal may look like by year's end and how that will impact your business's budget.
Even though many questions can't yet be answered, being prepared and thinking critically about your business finance strategy will keep you well-positioned to tackle the challenges and opportunities of the year ahead.
Financial insights for your business
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.