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2021 Budgeting for the Overwhelmed Small Business Owner

Posted on: December 8, 2020

By Matt Andersen, CPA, Founder MD Andersen CPA, PA

If there is one thing we’re all certain of in 2021, it is that uncertainty will continue to upend our business plans. No strategy is going to be perfect during a pandemic, but there are simple steps even the most overwhelmed business owner can take to prepare for what’s ahead.

One of the key financial lessons learned during the COVID-19 pandemic is the importance of savings and emergency funds. We recently examined how this phenomenon is reshaping our personal financial habits, but what about in business? It is not enough to simply open a savings account and start setting money aside. Businesses manage different types of activities, transactions, and people. The flow of revenues and expenses must be planned ahead and tracked, ideally with some kind of business budget, to help us determine how much we earn, how much we spend, and how much we can afford to set aside. 

It seems like a no-brainer that every business should work off some type of budget, and almost every entrepreneur will agree that is ideally how one should operate. The reality is often different. Many small business owners lack the resources (time, money, and expertise) to project revenues and create a practical and useful 12-month budget. In the age of COVID-19, it becomes even more challenging. Is it even worth putting forth the effort to design a plan that could blow up by the end of January?

The short answer is yes. It is still possible for business owners to track their results and plan for the future. Even in a pandemic. Even with limited time and resources. The key is making small incremental improvements to protect you from economic hardship and better prepare you for the future.

For those business owners who are overwhelmed by the thought of creating a 12-month rolling budget, but are ready to take the first steps, here are three simple ideas you can apply in 2021.

Call Your Accountant(s)

Budgets are traditionally built from your historical financial records. Your bookkeeper and/or tax preparer will typically keep these in some kind of accounting software like Quickbooks or Xero. Many of these software applications already have the ability to create a business budget from your existing information. However, you need to know what resources are available to you.

Call your accountants to find out what, if any, budgeting tools you already have access to. In some cases, you may have to pay a premium on top of your usual accounting fees. You may also want to consider the cost of hiring professional guidance to complete your budget. Having a bookkeeper or accountant walk you through the budgeting process can keep you on the right track and avoid wasted time. It can also build in some needed accountability to getting the job (finally) done.

If you do not currently have someone managing your books, there is no time like the present to start. There are plenty of smart, capable business owners who can manage their money, but is the opportunity cost of doing your own books worth it? If your numbers are not kept up-to-date, at least on a monthly basis, you will likely not be able to develop and follow a business budget. Even more importantly, it can lead to weeks, if not months of headaches when you have to catch everything up at tax time. If you do nothing else this year, at least commit to getting your financial house in order. With no numbers, there is no plan.

Start Where You Are

Budgets generally use financial results from the prior year to predict upcoming revenue and expenses. Most businesses take an optimistic view, targeting slightly elevated revenues relative to the year before (usually a percentage increase) and adjusting planned expenses accordingly. 

This strategy does not apply uniformly to everyone, but it is a good starting point for any business without a budget, regardless of the impact of COVID-19. If you have your numbers from the year before, ideally January-December, you can apply this same methodology. The prolonged impact of the pandemic has made it clear we are not simply going back to the way things were prior to COVID-19. If your results were lackluster in 2020, aim for realistic percentage improvements in 2021. 

It is important to take into consideration cases of extreme interruption (for example any months where your business was forced to shut down in 2020). In these cases, you may predict even higher percentage gains of monthly revenue in 2021. However, keep in mind any business, particularly those that cannot operate 100% remote, is susceptible to further disruption. It is next to impossible to predict the timing of this, but there is one additional tweak you can make to account for sudden drops in business activity.

Redirect Non-Essential Expenses Toward Emergency Savings

Every good business budget has some “padding” built in. For example, it is a common practice to overestimate expenses and underestimate revenue, particularly when you are less certain of the coming year. Given the incredible amount of uncertainty we continue to face, it would be wise to take this a step further and add some additional savings accounts into your budget.

These “savings accounts” are not traditional bank accounts, but simply line item categories in your budget that identify money set aside to pay for unanticipated expenses. These line items are sometimes called “rainy day funds” or “contingency funds”. No matter what you call them, they act like an emergency savings fund for your business. If you end up with a larger than normal expense, or experience a sudden reduction in revenue, you can be more reassured there is money set aside to cover the difference.

To increase your emergency savings, take a look at your nonessential expenditures including meals and entertainment, travel, networking, and miscellaneous subscription services. There are likely several opportunities to redirect funds toward emergency savings due to the consequences of COVID-19 restrictions. However, this is another area where it would be wise to consult with your tax preparer. Redirecting certain categories of expenses can impact your next tax bill. You can get more information about long and short-term tax planning services here.

The application of these three simple steps may not result in a fully realized, 12-month budget, but it will at least help you outline a plan to expect (and pay for) the unexpected. We are not out of the woods yet and there is no definite timetable for when and how a COVID-19 vaccine will be distributed. We can only plan for the worst and remain hopeful the lessons learned will strengthen our resolve to do things better, even on those particularly overwhelming days.


Matt Andersen, CPA loves analyzing data, people, and businesses. He is passionate about helping entrepreneurial-minded clients achieve their goals, keep more money in their pockets, and live a higher quality of life. In addition to tax and accounting services, Matt provides one-on-one coaching for various topics including lifestyle entrepreneurship, advanced tax planning, and new business creation.


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