Amateurs tend to focus on seeking brilliance. Professionals know it’s far more effective to avoid stupidity. The most important thing you can do is to identify common mistakes people make and avoid them – side-stepping typical errors. This simple action will keep you ahead of the competition.
You cannot leave your business to chance. You cannot sit back and let COVID-19 manage your business. It is essential that you be proactive at this most crucial time. You should be placing extra attention on your plan for 2021. Delineate those events that are dependent upon what you do to those that are independent. Plans never go as we’d like. They get delayed, we have setbacks, we have to make unexpected changes.
Understanding Independent Events
Businesses make mistakes when events that are independent are not treated as such. Outside factors will impact your plans and you must be prepared to deal with them. An important insight to remember is that while particular improbable events are likely, they do occur more often than thought. Your chance of winning the lottery is almost zero, but someone has to win it. We find randomness hard to process and look for meaning in chaotic events – be it COVID-19, a tornado, snowstorm, new legal restrictions, consumer behavior shifting, etc.
The Fallacy of Probability
If you were playing Russian roulette the odds of shooting yourself with a 6-shot revolver are not 1-out-of-6 but 50/50 – there is or is not a bullet in each cylinder. People tend to underestimate the probability of events occurring. That is why your business plan for 2021 is so critical and needs more attention than any plan before.
The 2021 Planning Process
Time and the demands of putting together a budget (plan) for 2021 that matches resources with strategy will be like no other. This year is not a year for a business-as-usual-budgeting process. Traditional methods no longer work. Nevertheless, you need to streamline the process and make the ongoing budgeting exercise much more responsive to outside forces and more cost control conscience amid ongoing and unprecedented uncertainty.
A perfect budget for 2021 may not be achievable – but a better budgeting process certainly is. Here’s how…
- When doing your 2021 budget you need to revisit and pressure-test the assumptions and decisions that were made (or not) during the COVID-19 crisis. How quickly did your business move from a brick-and-mortar operation which was closed-down to an e-commerce platform to facilitate sales? Which bold moves still need to be pursued and accomplished? These are the questions that you need to address.
- There will be a resurgence to a zero-based budgeting process. Moreover, this is budgeting where expenses must be justified for each budget period, ie. monthly, quarterly, etc. The issue for many businesses will be how much to spend and where, so as to keep the lights on and/or support recovery. There should be a clear understanding of fixed vs. variable costs. Because of the pandemic, certain industries like travel, are at a standstill.
A Spending Philosophy Redo
- The hold-back on spending and hoarding of cash will continue to be the norm throughout 2021. There will be a shifting of resources as needed to survive, a review of cash-burn rates, and the deployment of very strict cost controls. The overriding goal will be to allocate resources with more flexibility to address rapidly changing consumer behaviors and market demands.
- Businesses should move to shorter reporting cycles and decision makers should meet regularly, and if necessary remotely. Budgets typically set performance targets and this should not change although it may be harder given the current economic uncertainties.
If you haven’t, and you should have, start your 2021 budgeting/planning process. Of course, be mindful of what was discussed above and remember that you cannot leave your business to chance, you have to be very proactive in this time of such confusion, uncertainty, and doubt.