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How Small Businesses Can Budget for a Tumultuous 2021

by Donna Fuscaldo
Dec 10, 2020

Creating a business budget for the new year is challenging when it’s not clear when the pandemic will end. Here’s how to budget for an uncertain 2021.

Many small businesses are heading into the new year with a lot of fear and uncertainty. Amid the COVID-19 pandemic, a struggling economy and a new presidential administration, planning for the coming year is much more complicated than in years past.

Nobody knows how long it will take for the virus to get under control or what’s in store for business owners. Against that backdrop, businesses are preparing for the worst but hoping for the best.

“We built two budgets for 2021,” Adam Witty, CEO of marketing and publishing company Advantage|ForbesBooks, told “We have a worst-case budget if the uncertainty continues and business performance stays consistent with what it’s been in the past months and a more aggressive budget reaching toward the goals we originally set.”

Witty is just one of the many business owners who are budgeting and planning in a period of unprecedented upheaval as we near the end of 2020. Thousands of business owners have shut their doors for good during the pandemic, and surviving businesses need to plan without a clear idea of what life will look like and when more-normal times might return. Budgeting in the current environment may seem futile, but it’s an important part of preparing for your business’s future.

“Acknowledging next year will be different is the first step in budgeting for 2021,” said Michelle Wright, group sales executive at Capital One. “It has not been a normal year in 2020, and it won’t be that way as we move into 2021.”

How to plan your 2021 budget

Planning your budget for the next 12 months amid a pandemic and a teetering economy can be difficult, but it’s not impossible. Our sources offered the following advice for small business owners who are looking to prepare for a tumultuous 2021:

1. Ask yourself key questions about your business’s performance.

The pandemic hit businesses differently depending on their industry and their ability to pivot and adapt. As such, some businesses can plan for growth in 2021, while others need to remain conservative in their forecasting.

But there are questions that all business owners should ask themselves, said Paula McMillan, a member of the AICPA (American Institute of Certified Public Accountants) Personal Financial Specialist Credential Committee. Your answers to these five questions will dictate the type of budget you create:

  1. In 2021, where are sales expected to be compared with in 2019: above, below or about the same?
  2. In a normal environment in 2021, how important are your products and services to customers: less relevant, more relevant or about the same?
  3. What was your level of customer service and engagement during the pandemic: more engaged, less engaged or about the same?
  4. How important is growth to your business in 2021: critical or a nice-to-have?
  5. How much did you invest in infrastructure and your people based on expected growth: not enough, too much or the right amount?

The answers will reveal whether you’re planning for growth or need to rein in costs. Your sales figures provide an obvious example: If you project they will be lower, you may need to prune your budget; if you expect them to be up, you can plan for more growth.

One company focusing on the latter strategy is tech consulting firm TxMQ, which serves the banking, financial and manufacturing industries, all of which have held up during the pandemic. Sales are up year over year, and TxMQ is in hiring mode. For 2021, the company is tweaking its budget to allocate more to marketing, said Chuck Fried, president and CEO of TxMQ.

“We normally spend a rather significant amount of money on travel and attending conferences,” he said. “Some of that is going into online marketing, since we can’t physically get out and meet customers.”

2. Create scenario budgets.

The key to a successful budget is having enough cash flow. That’s particularly important in 2021, as forecasting with so many uncertainties requires finessing. Ben Richmond, country manager at Xero, urged business owners to create worst-case and best-case budgets and determine how much cash flow is necessary in both instances.

“Scenario budgeting allows you to think about what your cash flow looks like and if you need more funding,” Richmond said. “It gives small businesses confidence. They know there are things to be done in each scenario.”

With COVID-19 vaccines on the horizon, Richmond said business owners have to determine what it will cost to get through the winter. If there’s a budget shortfall, Richmond urged expediency with tasks such as taking out a business loan or applying for a business credit card, because you don’t want to be scrambling at the last minute to access capital.

“We’re seeing a lot of liquidity in the system,” he said. “It’s cheap to get funding, whether its overdraft or a loan.”

3. Take a big-picture view of your business.

For many small businesses, budgeting is all about the minutiae. It gives you the opportunity to plan the financial details of the business on a month-to-month or year-to-year basis, and that helps you plan inventory, pricing and cash flow.

However, Matt Baker, senior vice president of corporate development and international at FreshBooks, said a budget should also include a big-picture view of your business.

“A lot of people are focused on the microscopic, but equally important is the telescopic,” Baker said. “Sometimes, it’s helpful to think beyond the year to where you’re trying to go with the business. When you put yourself in both mindsets, it helps your budgeting.”

Attaching your budget to your growth drivers, whether it’s getting more customers or having existing customers buy more, will aid you in reaching those goals, he said.

If 2020 has taught us anything, it’s to expect the unexpected. That doesn’t go away as we head into 2021. Small business owners who plan for different scenarios will be in a better position to weather the storms than those who eschew planning and budgeting or stick to one plan at all costs.

“The biggest piece of advice is that nothing is set in stone for 2021,” Witty said. “You’ve got to be 100% adaptable. In a normal year, you set a budget, and come hell or high water, you’ve got to stay on plan. Now, you have to be open to your budget changing every month or even every week.”

Donna Fuscaldo is the Senior Finance Writer for