So if you are a certain age — no need to disclose if you don’t want to — you will recall the Friends episode when Ross moves into a new apartment and the agony portrayed as he attempted to take furniture from his old apartment to his new one. There’s a funny scene when he’s telling his movers to “pivot” the couch around the narrow staircase. Hearing him yell “pivot” over and over again reminded me of how small business owners and entrepreneurs need to constantly adjust their vision and their plan based upon the circumstances they find themselves in.
For most companies, this is a time of year to look ahead and budget for 2021. There are a lot of reasons to go through the budget process; but the single, most important reason is for companies to establish documented goals and objectives that support full potential growth. Studies show that people are more likely to achieve their personal and professional goals simply by writing them down and referring to them on a steady basis. Yet, another reason to document your goals and refer to them often is to be able to quickly recognize whether or not you are going to achieve them — enabling you to devise alternative plans to either update your goals or your strategy entirely.
Some of you may be reading this and saying to yourselves: What is the point of budgeting since last year no one could have possibly predicted how 2020 turned out? We would actually argue the opposite opinion: Those companies that implemented a formal budgeting process for 2020 were able to identify troubling signs in their industry sooner than those who did not prepare a 2020 budget. Businesses that had identified key metrics and KPIs recognized signs of an impending economic downtown and were able to adjust more quickly and effectively.
Although each company will have its own unique, key success factors, common data points such as revenue, gross margin, volume needed to break even, and cash/burn rate are global examples of metrics that every business owner needs to know. Having access to your key financial information and metrics is essential to succeeding in uncertain times.
Companies that have been able to survive and even thrive during the past several months were able to do so because they had the necessary information on hand to make the hard decisions quickly and efficiently. Manufacturers were able to focus their production on PPE and other safety measures brought on by the pandemic. Business owners who had to furlough staff were able to do so, emphasizing the extraordinary circumstances they were under and next steps for re-employing them.
Greater transparency into the financial performance of a company allows business owners to identify operating issues sooner and be able to adapt or pivot (pivaaattt!) expeditiously to minimize loss of profitability and cash flow.
Takeaway: As we start to enter into the 2020 holiday season — and kiss this year goodbye — let’s make sure we focus on creating the positive momentum needed to make 2021 as profitable, prosperous, and bountiful as possible. If you are not sure what an effective budgeting process is or have not prepared one previously, we would be happy to perform a diagnostic on your company to assist in making 2021 your best year ever.
Co-founders & Managing Partners