2020 will go down in history as a tumultuous, even destructive year for small businesses. The economic impact of the coronavirus pandemic was felt across all industries. Some businesses thrived with the public’s reliance on online shopping and delivery services, but others were forced to close their doors — permanently.
For small businesses that managed to hold on until the very end of 2020, congratulations are in order! It’s a feat to have stayed operational during the pandemic; but while it is something to be proud of, business owners can’t let their guard down when the clock strikes twelve on January 1. On the contrary, they need to be more vigilant in managing their funds. 2021 might be looking more promising, but the business climate is still largely unpredictable.
With this in mind, here are some business budgeting strategies that can help small businesses set up financial safety nets while spending for operational necessities and worthwhile investments.
Create Budgets for Different Scenarios
Go through the usual process of business forecasting using the current and existing data, and create a budget based on those results. Next, imagine other scenarios, good and bad, best and worst, and determine for each of them. This activity can offer a clear perspective on what must be done should the business heads toward any of the possible scenarios. Will the cash flow dry up? Will applying for a business loan be necessary? Are there assets the business can afford to liquidate?
It pays to be prepared, especially when the business landscape is so volatile and vulnerable to external factors that are beyond anyone’s control.
Diversify Your Loan Sources
Many small businesses weathered the pandemic but are still in need of additional capital. It could be risky to borrow a huge amount and be shackled to a rigid loan agreement, however, since there’s no telling if and when the economy will be back to how it was before the pandemic.
Diversifying the sources of funding may help reduce the risks of inflexible business loans. Besides applying for traditional business loans, for example, business owners can work with their business law and finance lawyers to look for alternative ways on how they can raise working capital. They can also help obtain funds that local businesses can use to temporarily switch their operations from brick-and-mortar to online.
It’s safe to assume that the businesses that “made it” through the pandemic had a financial cushion that softened the blow of mandatory community lockdowns and temporary closures. Businesses that depleted or made a huge dent on those savings funds need to start rebuilding that safety net as soon as possible.
Ideally, savings should be included in the budget plan as a fixed allocation and not as a variable depending on how much a business needs to spend per month.
A Year for Rebuilding
If 2020 was a year of experience and learning, 2021 is shaping up to be the time for rebuilding. The pandemic is far from over and stimulus checks are barely covering the needs of the people and local enterprises; and yet, opportunities that business owners never would have considered before the pandemic are emerging. Entrepreneurs who can see those chances for what they are and make the most of them will not just weather in the pandemic: they’ll thrive in it.
These tips can help small businesses plan and be in control of their finances even if the market remains unpredictable in the coming year.