If you made any unplanned changes in your business this year, you'll want to get an early start on year-end bookkeeping as you plan for 2021.
Let's face it: 2020 hasn't gone the way any of us expected. But that very unpredictability reinforced the core messages in the blog I wrote last year about the importance of annual business planning. The more informed you are about budget trends, tax-planning strategy and your long-range financial outlook, the more readily you can adapt to speed bumps and curveballs. And 2020 provided more than its share of those.
What will 2021 bring? No one knows. One thing is certain, however: Preparation matters now more than ever. And it all starts with solid bookkeeping.
How Did 2020 Change Your Business?
The disruptive events of 2020, most notably the COVID-19 pandemic, have touched everyone. So before you can chart a roadmap for your business in 2021, you need to gauge the extent of those disruptions. For most businesses, that means answering these three questions:
1. Did you move more of your business online?
From shifting to a work-from-home (WFH) environment to making more sales online and fewer onsite, businesses of every type have had to change their basic method of operation. How have those changes affected your company's finances? Which expenses were one-time costs, and which have fundamentally changed your financial infrastructure? Adjust that financial baseline to reflect your new reality, whatever it is.
2. Did you change your product or service?
This question is closely related to the first. If you're now conducting a majority of sales online, for example, that change in the service you provide can affect your finances. This is particularly relevant if many of those online orders are from out of state, which could impact your sales/use tax liabilities. An increase in online orders can also increase credit card processing fees, which can be substantial at, say, a restaurant that did away with indoor dining in favor of prepaid orders and curbside pickup. Regardless of the nature of your business, you need to assess how the pandemic has affected your products or services, even indirectly, and factor that into your financial analysis.
3. Did you take on new debt?
If you're among the lucky ones who secured a loan through the Paycheck Protection Program and were able to navigate the complex procedure to have that loan forgiven, this question has been not only asked, but also answered. No matter the type of debt, make sure you have thorough records of any financing (or refinancing) that you did this year along with any business-related expenses necessitated by the pandemic, such as improved HVAC systems and plexiglass shields.
Now's the Time to Figure Out Where You're Going
To be sure, the extreme nature of 2020's multiple crises called for extreme measures in some cases, such as paying closer attention to cash flow and conducting a more granular analysis of profit margins. But really, all that did was bring your 2020 forecast into line with 2020's reality. And that's something you should do in the normal course of business anyway — this year and every year.
So regardless of what 2021 brings, we'll be back a year from now offering our annual advice. Taking the time to reflect on your business — your previous plans, your changes and your budget forecast — is the key to stability in an unpredictable world.