A yearly budget serves many purposes. It allows you to minimize risk by predicting whether you’ll have the cash flow to purchase the new equipment or office space you’ll need. It also helps you set goals and provides a clear roadmap to achieve them—or to alert you when you’re moving off-course.
As recent times have demonstrated, one can predict what each year will bring, but you can still use past performance to create a corporate budget for 2021.
How to Create a Business Budget
A company budget includes revenue, expenses, and profits for the year. These numbers are estimates, which you generally create by looking at data from the previous year, as well as incorporating any knowledge of new trends, planned company expenses, or other adjustments.
- Revenue: This includes sales and other income. You want this estimate to be reasonable, bordering on conservative. Base this off your previous year’s income. If you’re just starting out, make predictions based on market research or by talking to others in your industry.
- Expenses: These are all the costs of doing business, including rent, paying employees, shipping product, and buying equipment and software. Again, start with the previous year’s expenses, but adjust for the growth you’ve experienced.
- Profits: These are the revenue dollars that are not used for expenses. This helps you identify whether you have any money left over for reinvestment.
How Does COVID-19 Affect Business Budgeting?
The pandemic upended budgets across the board for 2020, but now that we’ve been living with it for over six months, we have a better understanding of the ways it has affected various industries and businesses.
When looking to 2021, your budget will still need the three basics of expenses, revenue, and profits. However, there are important strategic planning considerations to pay attention to during this ongoing crisis. And you’ll need to adjust your budget accordingly.
Take expenses, for instance. If you have employees working from home, are there any security or technical investments you’d like to make? And cis there a way to decrease office costs to offset those?
Ensuring your employees are being taken care of, both mentally and emotionally, may increase expenses, as well. Perhaps, you’d like to offer therapy and counseling sessions or provide other bonuses or incentives to keep your team engaged. A budget is imperative to determining how much you can provide.
In terms of revenue, take a look at the different stages of 2020. What was revenue like in January and February versus April? What happened when restrictions eased? How do seasonal changes affect revenue? Do you have any income streams that may continue to grow?
Remember that all budgets are just guideposts for your business goals. They are not predictors of actual numbers. Particularly now, you’ll want to be conservative in your estimates.
Need Help Planning Your Company Budget for 2021?
Unsure where to start? Need help navigating an uncertain financial future? Focus Financial is here to help. Reach out to Focus Financial to speak with an experienced financial advisor near you! We offer the services, education, and ongoing support to help protect your business and thrive in your industry.
