Not sure how to plan for 2021 – I’m almost at the point of “what’s the point?” since 2020 was so unpredictable. We’ve always made decisions based on intuition and gut feeling, but that’s becoming pretty stressful. Expectations are sitting on my shoulders, my employees are stressed, and I feel like a wave is about to come crashing down on my business. How can we plan for the future and set goals if we don’t know what to expect?
Thoughts of the Day: It can be tough to plan for the future and set business goals for 2021 when 2020 was so unpredictable for a lot of small businesses. There are a lot of factors that are going to influence business goals and expectations for 2021. If you’re looking for a pattern to compare how revenue might come in, 2020 probably isn’t the pattern to follow. Put goals and expectations down on paper. This can help you feel like there’s a little more control in the outcome of 2021 and 2022. It’s important to plan for the worst outcomes but expect the best – and stay optimistic.
Setting company expectations and goals means everything. It’s a plan for revenue, expenses, and profit down to what kind of personnel the business has, and how to manage employees through a stressful time.
Ask yourself the following questions:
- If I had to let people go during COVID, how am I going to rebuild?
- What kind of personnel will I need in the future?
- How much do I need to spend on marketing and sales to ramp the business back up?
These are questions that you may not necessarily be used to planning at the same time. But you will need to think about it in order to build the business back up.
As you begin to think about your plan for the year, it’s important to map out what this year could look like. After a year like 2020, it is going to be easy to make a mistake and step into a black hole. We certainly would rather see companies doing that virtually on paper, rather than having to live it out in real-time. Planning is critical for business owners, especially since most business owners tend to act on gut feelings. 2020 and 2021 are completely unpredictable. By adding the stability of planning and setting goals can help to keep everyone moving forward and feeling productive.
Case Study: A business owner came to us for some planning assistance in 2020 at the start of COVID.
We worked with the client to map out their profits historically. We looked specifically at revenue, COGS, Gross Profit, Overhead, and Net Income in 2018 and 2019. They had done really well historically, and after achieving good growth from 2018 to 2019, they started out 2020 strong. The COVID hit their business like a ton of bricks like it did a lot of small businesses. We were able to coach them through 2020. We talked them through cutting operational costs, looking for higher-margin work, and different kinds of clients to help get them through the year. Through hard work and determination, this business owner was able to come through 2020 profitable, although at a much lower rate than previous years. And that was before factoring in any assistance that PPP gave their bottom line. Now our client is focused on planning for 2021, setting goals and expectations, and being realistic.
The business has done a lot of ramping up to get ready for 2021, and we’re already talking about 2022.
This company is optimistic about how the year will go because they’ve been able to find some new talent. They’ve noticed there are people out in the job markets today that a couple of years ago weren’t necessarily looking for jobs in their arena. They’ve done a really good job of building their talent pool, which has helped them tremendously. But, as we laid out the map of how profitable they might be this year, we saw they could lose 20% in 2021. Fortunately, in working with our team, we were able to map it out on paper and identify that possibility and start working through some solutions, before it happened.
So, they’re now able to look at how that possibility could happen and work to make the necessary changes to prevent it. Had we not gone in and done the initial forecasting, the conversation of how to get more efficient and more effective might not have happened until later in the year. That might’ve come too late to salvage the profitability for them in 2021.
Some business owners right now may be feeling the opposite. We’ve heard the same sentiments echoed this year and last: “I’m already feeling stretched. I can’t possibly take on more work.” While that is a valid feeling to have, it’s not the solution.
Feeling overwhelmed doesn’t mean stop selling, or stop trying. It doesn’t mean slow the workflow down or give up on your business goals. Sometimes you have to take a step back and breathe, but ultimately as an owner, you need to dig into the operations and organizational structure. Look at that and see what can be done do to help them get more efficient and more effective. Here are some tips on how you can figure that out.
Set a goal for net income percentage for your company.
In the previous client’s case, their goal is always to make at least 16% net income. Setting a goal for net income percentage first allows you to work backward and see where changes and adjustments need to be made throughout the rest of your organization. Figure out exactly what your net income goal means in terms of the overall cost of doing business, how much revenue you need to have in order to support that goal, and ultimately how productive your team needs to be to accomplish that.
When you spend time planning, you’re able to play with various financial levers to see what will affect profitability, and what the outcomes might be.
Revenue can solve a lot of problems. In the previous example, the first solution that the owner had was to just sell more. As we played with just that lever, we saw it would have taken over a 50% increase in revenue, which is a very scary proposition. It’s important to be realistic in your ability as a business leader, and in your team’s ability both in terms of, can you sell that much, and can you sell to that rate only with good profitable customers? Then you need to look into your operations, and what they can reasonably handle – especially if you have a reduced team. Can your business handle the extra work that comes with a 50% increase in sales? And can you do so effectively to not annoy your customers or lose any good customers along the way? This client was having trouble meeting expectations and so a 50% growth in revenue meant that the potential existed to make more mistakes and for more things to go wrong. It’s often better to temper expectations in scenarios like these, and plan for a lower amount of sales and revenue.
Trying to grow your business, or revenue too fast can be a risky game to play.
A 50% growth rate can be daunting in a non-COVID environment. With the added stress of running a business during a global pandemic, it’s important to be realistic. In the previous example, we worked with this client to set their growth goals to a more reasonable 20-25% increase in revenue. Solidify what growth rate you want to achieve. Then review and identify what the business needs to reduce costs. Tweak operations to ensure savings drop down to the bottom line, achieving the profitability goal originally set. Planning ahead can help a business stay on track and get what they want to have as an outcome throughout the year.
Setting expectations is about using metrics and planning tools to get to the heart of the business.
This includes thinking about the people that you have, the setup that you have, and how you’re going to do work. To get the numbers you want, you’ll need to make sure everybody is communicating effectively.
Look at what’s happening in your business sector and in ancillary industries and ask yourself the following:
- If you had to pivot, have you pivoted enough?
- Are you strong enough at producing whatever you’ve pivoted to do?
- Do you need more resources this year?
- How are you going to pay for them?
- Instead, should you be leasing them for a while to find out if they’re the right fit?
As a business owner, you need to ask yourself a lot of questions:
- Do your people understand the pivot work?
- Are they onboard with the fact that you’ve pivoted and that this could be a permanent change?
- Do they need any training?
- Do they need any development support so that they can get better at doing what they’re doing now?
- Are there any people on board who might be heading for the exit now?
Clearly, we’ve suddenly shifted into a high unemployment economy, with 10 million people still looking for jobs, so the likelihood that people are going to be out there actively looking to change jobs is lower. But that doesn’t mean that you should ignore the possibility.
Give your employees reviews and be transparent with them about how the company is doing, and what business goals you have for this year.
Employees are feeling the uncertainty too, they may be wondering if they’ll still have a job in a few months, or even if the company will still exist. As you move people around and ask employees to take on new tasks, make sure that they understand any changes in their job description and that they are on board with what their new roles and responsibilities will be. Positive reinforcement will also help employees understand how well they’re doing on the new job duties.
Make sure that your employees have the proper training and enough time to learn how to do these new tasks, with an ongoing training plan to build better skill at those jobs. You may find that some of your team have hidden talents that you didn’t even know about. These talents might have been outside their designated job scope in the past, but could prove beneficial as the company adjusts and adapts to a new way of operating.
If you were an owner who went into 2020 thinking that it could have been the year to sell the business or get the business ready for sale, that plan surely changed dramatically once COVID-19 hit.
Now that 2021 has rolled in, maybe you’re reconsidering. You might be aging out or getting ready to age out as an owner and thinking about the next generation. There’s a lot of planning work that you want to be doing. Getting a valuation now is a good place to start, understanding what your business is worth based on the past few years will help you to assess how much you need to recover from 2020 to build a saleable asset. It’s important to establish growth and profitability trends pre-COVID, we recommend going as far back as 2016 or 2017 and using historical data to show potential buyers that – yes – COVID did affect your business, but historically the business has performed at a different level. Planning out your recovery for 2021 and 2022 will also help show potential buyers that your business is still viable and valuable regardless of the downturn in 2020.
Rethink your game plan for your business goals as you move forward.
You don’t have to keep doing exactly what your business does now, or did before 2020. Ask yourself:
- What is a future buyer going to want from the company?
- How have their expectations changed because of having been through COVID-19?
- What makes us valuable in a post-COVID-19 world?
In conclusion, plan for the worst and expect the best.
As Denis Waitley, American motivational speaker, writer, and consultant once said: “Expect the best, plan for the worst, and prepare to be surprised.”
What that could mean for you as a small business owner is this: look at the marketplace in which you’re going to operate, make sure that you are operating in more than one vertical market with more than one group of clients so you can do the same things that helped a lot of companies pivot successfully. Make sure you can move quickly from one group, product, or service to another, depending on how things play out. Don’t stay stagnant.
Most importantly, don’t give up.
If you have an entrepreneurial spirit, you can weather this storm. If you can’t, Strategy Leaders can help push you in the right direction.
