There’s no doubt that your inbox, phone and TV have been inundated with news regarding the current situation in the world. Mostly, this information is split into two categories; health and finance. These two topics are inseparable in the foreseeable future, which doesn’t seem that seeable, right now.
In a far-from-typical year, 2020 has literally changed our entire culture. These rapid and massive shifts make it all the more clear — business owners need to think about 2021.
To oversimplify, there are three (very) broad scenarios:
- Situation improves:Treatments improve, people become less skittish and the economy shows real signs of life.
- Things stay the same:Some states open, others remain a bit more shut down and the economy is a rollercoaster.
- Situation gets worse:Economic and social measures revert to what they were closer to in the spring of 2020.
No matter what the situation, 2021 likely comes with the need to prepare your finances and pivot your business practices.
Here are 7 tips to consider when planning the next 12-18 months.
1. Understand Your Business in 2021 (The Keyword is “Agility”)
Are there going to be more widespread lockdowns? Will current spending habits change back or continue? Is there any hope of normal within the next year?
The answer to all of these hypothetical questions is “no one knows.”
The unclear nature of 2021 makes understanding how the coming year plays out difficult (but not impossible). That said, there is one thing that is clear —An agile business, with a solid financial framework is far more likely to succeed in unknown economic territory.
Perhaps the most important tip is to better understand your own business. In fact, most of the following tips on this list are internal business considerations.
3 ways to create agility in your business
- Track metrics that matter:Up-to-date information means better decision making.
- Use scalable solutions:Ensure outsourced services and software solutions are able to fit the needs of your business.
- Communicate:With your customers, your staff, suppliers and your financial professional(s).
2. Create a Better Budget
You need a quality budget for any 2021 scenario. If things get better, you need to understand your cash flow in order to spend the right amount gaining new customers. In a worst-case, it’s important to know the bare minimum you need to survive and how much of a cash runway you have.
If you don’t do basic budgeting and bookkeeping, this is the year to start.
3 benefits of creating a budget
- Gives insight into unnecessary spending
- Knowing where the business stands gives confidence
- Highlights any flexibility and opportunities
3. Adapt to New Business Practices
This “tip” is an entire article in waiting. There are so many new and innovative ways to run your business. Some were created due to necessity. Others were already around, but gained exposure in 2020.
Your business may stand to benefit from changing certain practices. Plus, other businesses you rely on (suppliers, service providers, etc.) have, in some cases, dramatically shifted how they do business. It helps to understand how these differences will affect your organization.
3 business practices that have changed in 2020
- Remote work: If you’re a service-based business, it’s likely your team has worked from home (at least partially).
- Online presence:Many businesses have shifted their focus to acquire clients and practice business online. Social advertising, content marketing and webinars have increased.
- Niching down services:Some of the services you use may not be offered by your provider. Many are paring down in order to better serve a more niche client base.
Note:Again, your business may have to make these changes. But if not, it’s a good idea to check with the companies you use to see if their practices have changed.
4. Understand Sales Channels
With so many ways 2021 can play out, it’s more important than ever to test your customer acquisition strategies. One way to prep for any outcome is to fully understand the sales channels of your business (and industry).
Example scenario:An ecommerce business understands that Facebook ads perform better than Google ads. When sales drop, it’s better to reduce spend on Google while increasing FB ads buys. (A bonus tip is using your budget to determine how much money you have to spend to maximize FB ad profit.)
3 ways to improve sales channels
- Figure out your current acquisition channels
- Determine the lifetime value of customers acquired by each channel (or begin tracking this)
- See where your competitors are spending their marketing dollars (i.e. content marketing and ads).
5. Track Key Metrics (in real time)
It’s easy to get off track when it comes to metrics. You can track too many items, the wrong items or get lagging metrics that don’t really give you the pulse of your business. Depending on your industry and market these metrics vary wildly. But there are several universal indicators to measure.
3 key metrics to track in your business
- HR numbers:Obviously tracking payroll is a good idea, but you should also know how much profit per employee you have. Tracking people analytics by connecting payroll with your accounting provides much greater visibility. Doing so helps with staffing decisions (both positive and negative).
- Sales/revenue:This is one top line number you should always know. How are you compared to the previous week/month/quarter?
- Cash flow:If cash flow from one month to the next gets low, you may have an accounts receivable issue. Too much and you’re likely not utilizing money properly.
6. Use a Financial Forecast
Forecasts differ from budgets. Budgets keep you in line with your current spending. Forecasts help you predict various outcomes (kind of like our 3 scenarios). The better and more flexible your forecasts are, the more you can plan for any 2021 that may come.
A true forecast should look ahead two to five years, with assumptions based on your business model and growth plans. A financial forecast is a great task for a fractional CFO, and can be a major driver for a growth-minded business.
3 benefits of a financial forecast
- An accurate forecast allows you to budget better for the coming year.
- A flexible model provides better scenario planning and how you would have to change in order to deal with each possibility.
- Seeing how much cash flow you’ll have shows realistic growth opportunities vs thinking too small or having “pie in the sky” goals.
7. Solidify Operations
Even if your business tends to thrive in adverse situations, it’s a good idea to check for any ripple effect. For example, an ecommerce store relying on foreign distribution. Inventory shortages are a big deal for a business who expects to sell more products over the next year.
No matter what, someone in your business ecosystem will significantly change in 2021.
3 operational details to secure
- Supply chain management:Get on the phone (or in an email) with all vital areas of your supply chain. See what their outlook is, renegotiate if possible and understand if they’re ready for your needs in the coming months.
- Staff level and focus:Make sure roles are clearly defined, procedures are understood and be as honest as possible about the outlook for the company.
- Tech and services:Take a look at every program, tool and service you pay to use. One common problem is underutilization. Learn about all of the features and services provided to make sure you’re getting the most value.
Revisit and Adapt Throughout 2021
2021 comes with uncertainty. A nimble and agile approach better prepares your business for survival and success. And after you prepare, it’s necessary to keep tabs on each aspect of your business as often as possible.
Get your finances in order, track the most vital business metrics (in real-time) and change your approach to deal with changes and trends you see in the market. Do that, and you’ll do more than survive next year — you will thrive.