More than ever, small businesses need to understand and manage their finances to navigate the new terrain of 2021, not just to survive but thrive.
2020 lost some great businesses and the years to come will take more. So how can you begin protecting yourself and your business when the landscape is still shifting below your feet?
Below are some essential tips to consider:
According to yelp.com more than 97,966 businesses, 2020 caught them off guard, causing them to close their doors permanently. Though traffic is picking up for some, there is no promise that revenue will get better for all businesses.
1) Build a budget Whilst we can't predict what lies ahead, we can learn from the past, make educated assumptions and create a budget for the possibility of a tumultuous 2021.To help plan a tentative budget, here are a few questions you should ask:
What was revenue like in January and February of 2020?
How did it compare to profits in April of 2020?
What do you experience as the pandemic restrictions ease/tighten?
Do seasonal changes affect your revenue?
Do you have revenue streams that continue to grow?
Have you increased or decreased expenses during the pandemic?
2) Know your goals For some businesses, making goals for 2021 might seem elusive, especially coming out of a year like 2020. However, by taking the time to define your goals, you will find the grit you need to stay in the fight. Success isn’t by chance. Simply dreaming and hoping for growth in 2021 will not cut it. Tips to setting achievable goals:
It’s still OK to dream big
Write your goals down
Set achievable milestones
Share your goals
Work on your goals daily
Be SMART (Specific, Measurable, Achievable, Relevant, Time-bound)
3) Actively analyse finances By consistently running a balance sheet and updating your financial statements, you’ll always have your thumb on the pulse of your business. Your trusted advisor will help you understand your economic landscape and advise on going forward.
4) Understand your cash flow As a business owner, you need to know where to spend your money and where to pull it back.
Though a business can look successful on paper, businesses fail at an alarming rate due to cash flow. It is essential to shorten the days between spend and collection from sales. The fewer days between the two means more cash on hand and less you will need to borrow. Developing a cash flow projection will ensure you have the money to pay vendors, staff, lenders, and yourself. This is something your accountant can set up with you and show you how to make the most from this valuable tool.
5) Separate business and personal It’s more important to separate business from personal finances in 2021. Making the separation will ensure you treat your business like an independent entity while protecting your financial circumstances with a ‘corporate veil’. This type of protection makes the company accountable for any debts or legal responsibilities rather than holding the owner personally accountable.
6) Save for emergencies For businesses that have made it through the COVID-19 pandemic, this might be hard. But you need to count every pound and make every pound count. Here are a few cost-saving ideas to help free up money to save:
Stick to your budget
Monitor your cashflow and identify areas to save
Time management is vital
Cut production/time costs
Outsource wherever possible so you can focus on making money and servicing customers
Get a trusted advisor if you don't already have one. The savings you make should outweigh the costs
Create affiliate partnerships for co-marketing
7) Listen to your customers For lots of businesses during economic downturns, they stop serving their current customers and start desperately looking for new customers. A better approach is to introduce new products and services for customers who already know and love you.
Your customers will let you know how to stay in business. Consider taking the necessary steps to listen to your customers by giving them a way to connect with you 24/7. Don’t stop there. Listen to them with the intent to act. Your customers are letting you know how you can serve them better.
Remember, other companies are looking for new customers and if you are not tending to yours, your competition will.
8) Focus on the future, not the past 2020 was devastating for the world in many regards, but there is still a bright future ahead. We must learn from our past, but we mustn’t stay in our past. The future is in our imagination, so when you set your goals, budget, or strategies, be realistic, but still aim high.
9) Be agile and adaptable Small businesses have this by the bucketload.
Be prepared for anything; you have got to be able to think on your toes. 2021 will not give you the time to cut through red tape. If you’re too slow to open the door when opportunity knocks, it will head over to your competitor’s open door. Become more efficient by automating redundant tasks to free-up management from routine, time-consuming tasks and allow them to engage in business strategies to increase profits and customer service.
Many businesses failed due to their inability to be adaptable. You should be able to pivot at a moment’s notice in good times or bad. This past year we saw restaurants close in droves while others seemed to thrive. The difference was the quick adjustment to delivery and curbside service.
10) Showcase your differentiation In 2021 brand connections are becoming more critical for consumers. Customers are now looking for brands they can trust and support during these challenging times.
Companies need to step up and show they are willing to provide superior customer service, operational excellence, clear and transparent communication. Especially in times of struggle, people are looking for assurance and reassurance.
Now is the time to shine and show others you care. Remember your ‘why’.
Most important, remember why you went into business in the first place. Do you have clarity around the ‘why’ of your business? No? That’s ok, but it’s time to figure it out. It is not about making money; that is the result. Your why should be the purpose, cause, or belief behind the reason your business exists.
The landscape is uncertain for 2021, but there is reason to be optimistic. It’s businesses like yours that have time and time again brought back a thriving economy. Businesses who stimulate growth with new products and services create jobs and infuse the economy with the money it needs to recover.
Purple Accounts can help you achieve success in 2021, not just with the numbers but everything your small business needs to grow and for you to reach your personal and business goals.
This is adapted from a guest post via Xero from Justin Hatch, CEO of Reach Reporting