Small business budgeting is more important now than ever!
It has been nearly a year since the pandemic became a problem. The mandated government shut-down created a domino effect that has crippled our nation’s economy.
The mandated shutdown left small business owners feeling strained over an unprecedented time. Many businesses were unable to produce revenues like they were in previous years. Additional expenses have developed for businesses to function. This includes costs associated with increasing safety protocols for employees and customers.
As we are looking through both our rear-view mirror and our dashboard, determining the road in front of us, we must be mindful of our current climate and prepare ourselves financially as best as we can with the information we have available.
We do not have an end date for the current pandemic.
This makes budgets and forecasting rather challenging for small businesses. Budgeting and monitoring budgets are absolutely vital. It is important to apply the lessons learned from 2020 to the future.
One of the biggest takeaways was that many small businesses and consumers did not budget for emergencies and had cash-flow problems.
This caused many businesses to either shut down or rely on government resources to sustain themselves.
2021 requires thoughtful budgeting and planning.
There is no end date for the pandemic and the mandates on social distancing. Budgets will need to be monitored and adjusted as the pandemic impacts us.
Here are Four Small Business Budgeting Tips for 2021:
1. Include Establishing an Emergency Fund or Increasing Savings
Business owners without an emergency fund should prioritize establishing one. It is vital to building an emergency fund as part of your budget. Unforeseeable situations and expenses will be much easier to handle if businesses are better prepared.
With many businesses just barely making it, one may wonder how to stash some extra cash?
- The pandemic may have created a decrease in some expenses. Line items may be decreased or eliminated. For example, line items for Entertaining, Professional Development, and Networking Expenses may be decreased significantly. These reductions can contribute to savings.
Analyze your previous years’ budget, comparing actual revenues and expenses to projections.
Be sure to track the difference by the amount or percentage of the variance. Analyzing areas with big variances may allow one to understand if 2021’s budget needs to be adjusted. Projections need to remain the same as in previous years. Keeping the same budget may require additional efforts.
When estimating our expenses, we typically underestimate projected costs. Think of a time in which you may have done a home improvement project. Whatever you expected it to cost typically did not account for unforeseeable circumstances or that labor and supplies cost more than the expected amount. Revenues may need to be adjusted to cover these expenses.
2. Do not Underestimate the Importance of Details in 2021’s Budget
Some of the most successful entrepreneurs can evaluate their current revenue streams and make small changes or focus on more profitable areas. This could be a real game-changer in the company’s profits.
- Companies that pivoted in 2020, introducing new services or products, may want to consider how this could impact overall sales. Additional compensations, such as commissions, will need to be budgeted. Marketing efforts to support these new products or services will have expenses associated with them, also.
- Business owners should be mindful of both busy and slow seasons. Entrepreneurs should place higher earnings during strong periods in reserves for slow seasons.
- The business owner’s time is often forgotten. Time should be budgeted and monitored. If there are ways to delegate responsibilities internally or outsourcing to allow a business owner to focus on other responsibilities, this can result in bigger profit margins.
- Regulatory changes may impact budgets. This includes tax changes or minimum wage increases. PaySmart provides updates to its clients as these changes are approaching to help them best prepare as needed.
3. Create a Plan to Repay Loans
Many business owners received SBA loans and extended lines of credit this past year.
Many businesses received SBA loans last year, and many small businesses had these loans forgiven. However, some businesses did not receive forgiveness. SBA guidelines state that these loans will need to be repaid on either a two or five-year timeline. These businesses will need to ensure that budgets include a line item to pay back these funds. Businesses with questions should contact their local lender or visit the SBA’s website for more information.
Budgets will need to include any applicable payments for those that advanced credit lines, as well.
4. Segregate Your Business and Personal Finances
It is common knowledge that it is important to keep business and personal finances separate. Business owners often invest so much energy in the business and focus less on their personal finances. Business owners need to pay attention to their personal finances, as well.
Aside from recognizing the importance of keeping personal and business finances separate, there are a few tasks that an entrepreneur may want to focus their efforts on.
- Recognizing the need for listing personal financial goals and creating a personal budget
- Ensuring that personal bills are paid timely, as they can impact credit scores, which could impact future business plans
- Establishing a personal emergency fund and increasing existing emergency funds as needed
- Considering opening a line of credit now, in case of an emergency, to be accessible to advance, as needed
2020 seems like it lasted a decade vs. a year!
We have made it through 2020! We may be on the road to financial recovery. Small business owners will not be able to recover without learning from the lessons of 2020 fully. We must be mindful of our future. Business owners must be diligent in keeping both eyes on their numbers. Budgeting and monitoring budgets are vital to getting back on track!
PaySmart is a payroll provider located in Mechanicsburg, Pennsylvania, supporting small businesses in the Central PA region. We are dedicated to helping small businesses take care of their payroll needs. To learn more information about how PaySmart may provide payroll solutions, please contact us at 717-766-1777. Our New Client Concierge is waiting for you!