Taking Small Bites Out of Budgeting

As we enter the last quarter of 2020 (I hear you cheering), business owners and finance people are feeling weary. This year has been a non-stop challenge filled with uncertainty, shutdowns, employee safety, economic shocks, remote work, changing business models, and PPP. But 2021 promises no rest to the weary and will demand yet another pivot in how you budget and forecast.

In a recent McKinsey & Company survey, 50% of finance and business leaders said they would not be using traditional models to develop annual budgets. They recommend using streamlined budgets, with over 65% indicating they would be using rolling budgets.

Here are three ways that translates to your business.

Use What You Know

We are still in the middle of a pandemic with rolling shutdowns possible in many locations. While it may not be pretty, your 2020 financials are probably good to use for your 2021 budget. You probably started off the year in good shape revenue-wise, dropped in March through May, and started to see a small but slow recovery from June forward. For most businesses, 2020 has not been your best year by far, but it is a good measure to use for 2021, especially the first three to six months of 2021.

Take Nibbles, Not Big Bites

Plan your year in smaller pieces. Set your budget for the first three to six months. It is easier to pivot or adjust when you don’t need to look at the whole year. Plan for the first quarter of 2021. Then mid-way through February, plan the next three months, and so on.

Two is Better than One

Another reason to streamline and shorten your budget process is that you need to make two budgets: a best-case and worst-case scenario. If 2020 has taught us anything, things can and will change fast and we need to be able to pivot quickly in response. Having both versions will help you work through most situations that 2021 might throw your way. As you move through the year using the Small Bites method, you can move between the best and worst scenarios.

Expand Your Knowledge

For a more in-depth discussion on budgeting for 2021, Tom Himmer, Vice President of Customer Relationship Development for the outsource HR firm Insperity, wrote a great article in bizjournals.com with excellent ideas on keeping perspective and what to focus on as you plan 2021. Read more from his perspective and talk with your network to get other ideas.

The Takeaway

Making a forecast or budget in normal times takes time and effort. Planning ahead during a pandemic can be overwhelming. The old saying, “How do you eat an elephant? One bite at a time.” is a great reminder for times such as these. So, take a deep breath, pour some more coffee, and remember to take Small Bites as you begin to plan for 2021.

written by: Cheryl McNamara

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