2020 flew by, but before the year is out it’s a great idea to make time to work on strategic planning for 2021. A great place to start strategically planning is by looking at your business’s finances. In this post, I’ll discuss 7 budgeting tips to make 2021 the best year yet for your business.
Review Your Expenses
Start planning for next year by looking at and carefully reviewing your 2020 business expenses. Ask yourself questions like:
- What did I spend the most on in 2020 to operate my business?
- What cost recurred the most?
- What was the return on investment for the largest and most frequent expenses?
Plan for Future Expenses
Based on your answers from the above questions, make a plan for 2021. For example, if you spent a surprising amount of money hiring freelancers to do specific work for you and there was a substantial return on investment in your business you may want to consider spending more in that area. For example, if you spent a lot of money on outsourcing social media work and you saw a substantial return on your investment, you may want to consider hiring someone part-time or full-time in that position. There will be added costs with bringing someone on as an employee, but you may be able to get a lower hourly rate as well as increased growth in your business by making a larger investment.
On the other hand, if you spent a lot of money on something like merchant fees, for example, you may want to consider assessing if you can get a better deal with a new merchant. In the past, you may not have enough transactions to make a company like PaySimple worth it, but if you are processing enough transactions a merchant account with a monthly fee but a lower transaction cost may be able to save you money.
For every substantial expense, think about if you want to spend more or less on that next year. Then, think strategically about what you can do to make that happen.
Review Your Revenue
Once you’ve reviewed your expenses and thought strategically about how you want your expenses to be different in 2021, it’s time to review your revenue. Look at the revenue you brought in in 2020 and ask yourself questions like:
- How easy/difficult/time-consuming was it to bring in this revenue?
- Were there certain months or revenue sources that were more profitable than others?
- What was my most profitable month/revenue source?
Think Strategically About Revenue
Based on the answers from above, make a revenue strategy for 2021. For example, if you made a substantial amount of money from one revenue stream, but the time, effort, and marketing costs that went into making that money left you with a low return on investment of your time, you may want to discontinue that strategy for 2021. Alternatively, if you find that one revenue stream is highly profitable, you may want to think strategically about how you can get more business in that area.
Project Your 2021 Budget
Once you’ve reviewed your expense and revenue, work on projecting your budget for 2021. If you have strategic investments that you want to make in the new year, put those in your budget. Also consider planning for financial emergencies as it is better to be proactive when possible. Budget for another financial emergency to happen in 2021. You may not know what the emergency will be, but you can plan to have money set aside “just in case”.
Basically, think about how you can do more of what works for your business and less of what doesn’t work.
Play Around and Make Adjustments
Budget projecting isn’t a “one and done” process. You can create multiple versions of your budget to find the one that works best for you and your business. For example, you can project out what a budget would look like if you made substantial investments in your business and that also led to substantial growth.
On the other hand, you can project a budget based on making investments and finding that those were unsuccessful and didn’t lead to the growth you expected. While you don’t want that to happen, as a business owner it’s helpful to understand what it would look like financially if you took some financial risks and they failed. You can take time now to create backup plans if something failed so that you don’t risk complete failure.
Have fun with this process and think of yourself like Goldie Locks- you can plan with different budgets until you find that one that’s just right for you.
Call Your Accountant
The end of the year is a great time to talk to your accountant. You can ask them to project out your tax liability now so you can start planning for what you’ll have to pay in 2021. In addition, if you are on a cash basis and do this before the end of the year, you’ll still have time to reduce your profits and therefore your tax liability by purchasing supplies you need for your business.
Specifically, if you are on a cash basis you can pre-purchase supplies and/or inventory that you’ll use next year. For example, you can stock up on office supplies, equipment, or any other raw materials that won’t go bad. Now is also a good time to stock up because you can take advantage of holiday deals. Don’t forget to save your receipts and make sure the items are purchased before the end of the year to make this strategy work for you.
On the other hand, if you are on an accrual basis, you can chat with your accountant and strategize what expenses you will push off until next fiscal year to help save you money.
December is a busy month for most people but it’s also a prime time to plan for the new year. If you’re reading this, take action now by blocking off time in your calendar to strategically work on your business before the end of the year. A few hours strategically planning in December can do wonders for your business in 2021.