3 business lessons learned from 2020 to help you move forward in 2021
For all its ups and downs, 2020 will at least end on a hopeful note, with many in the small business community relieved to soon have American leadership that promises to tackle the pandemic crisis (among many other issues) with a clear plan. As business leaders build their strategic plans and budgets for the next year, here are three important takeaways from 2020 that will help businesses move forward in 2021.
Don’t let back office tasks fall through the cracks.
If your business has undertaken any major operational or financial changes this year, such as closing a physical office location or applying for a PPP loan, it’s important that your back office and finance team is especially attentive on all year-end tasks, especially when it comes to your books and tax prep. Prepare a punch list of things for the team to review in detail, so that you don’t miss anything. Some important things to consider:
Updating addresses for your office. If you’ve moved or closed locations, be sure that you’ve properly submitted an address change or extended mail forwarding as necessary, so that you continue to receive important corporate notices that may only come once a year.
Updating employee and contractor addresses. Have any of your employees or contractors temporarily moved due to the pandemic? You’ll need their updated addresses to be able to file and send year-end paperwork such as W2s and 1099s.
Check with payroll to ensure proper state taxes are being withheld. If any of your employees have relocated out of state, even temporarily, this could affect how your company is required to withhold state taxes. The rules between states are complicated, so to avoid double taxation, be sure to consult with a tax advisor and keep detailed documentation for each employee on which days they have worked from their out-of-state residence. If you plan on continuing remote working into 2021 and beyond, consider solutions like Deel that may help simplify payroll and compliance for distributed workforces.
Gather documentation needed to take advantage of coronavirus tax relief. This year, companies have two new employer tax credits available: the Credit for Sick and Family Leave due to COVID-19, quarantine, or childcare closures due to coronavirus; and the Employee Retention Credit for businesses that have been partially or fully suspended due to governmental orders due to COVID-19, or businesses that have a significant decline in gross receipts compared to 2019.
Audit your current business insurance plans. If any aspect of your operations has changed, including new headcount, furloughs, significant job duty changes (for example, if an office employee now performs delivery services), or product or service changes (for example, if you now manufacture PPE in addition to your usual products), you should speak to your insurance agent to see if this affects your existing coverage plans. In some cases, this may be a good thing. If you’ve reduced payroll or have closed an office, you may be able to reduce your premiums for next year.
Budget for change in your 2021 plan.
For many SMBs, preparing next year’s budget will be a complicated endeavor. Should you base your budget on 2020 numbers, or look at pre-Covid numbers? Will we be in recovery mode in 2021, or should we anticipate another doom-and-gloom forecast? Should you take a traditional budgeting approach, which bases itself on previous year’s expenditures, or try a zero-based budgeting method that calls for justification for each and every expense?
At Creative Business, we recommend a balanced approach that combines elements of both traditional and zero-based methods. We call it strategically budgeting for change, as it takes into account external threats and opportunities that could potentially impact your business and builds these scenarios into various forecasts for your budget.
Some questions you may want to be asking for next year:
What are the impacts of potential lockdowns, quarantines or border restrictions on our business? How soon would the company feel the effects of a vaccine being made widely available?
How will supply chains continue to be affected by the pandemic over the coming year? How dependent are we on certain suppliers or vendors, should they be forced to close their business temporarily?
How might our sales or fulfillment channels be affected by the pandemic? Might we need to diversify or make investments to become more resilient?
Will we need to rethink our physical space requirements for the long-term? Will we want to become permanently distributed, downgrade our space, or use temporary office solutions?
In what ways might a new incoming administration affect our business?
Once you’ve identified your best- and worst-case scenarios, build a high, medium and low version of your budget. The mid version of your budget becomes your baseline, and your strategic plan will identify the key triggers that allow you to adopt a more optimistic version of your budget, or force you to tighten up on expenses. For example, this could mean tying actual revenue growth percentage to new hires, or having a drop in profit margin prompt a pull-back on certain expenses. The more thought you can put into budgeting for change, the better prepared you will be in the face of uncertainty.
Develop and nurture professional networks outside your industry.
One of the biggest lessons that our clients have learned this year was just how important it is to have a personal relationship with your banker. Amid the chaos of applying for PPP loans and other coronavirus relief, small businesses that had personal relationships with bankers—literally a person they could pick up the phone and call—fared much better in getting paperwork properly completed and expedited.
It was a reminder to all of us in the business community that in times of crisis, the best resources that we have are in one another. Individuals that had developed robust and diverse professional networks, especially with people outside their industry, were able to collaborate and navigate the crisis more agile and quickly.
As a business leader, take the time to cultivate and nurture your own professional networks. One of the best ways you can do this is through peer groups, which bring together members that all have similar professional status (e.g. CEO, owner, executive) but work in unrelated industries. Peer groups like Vistage (for established CEOs and high-level execs) or Facet (for early-stage founders) have been a great source of advice and support, especially during a year of unprecedented challenges. Investing in these networks now will build resiliency for your business as you move into 2021 and beyond.