We’ve rounded the corner into 2021, but the economic effects of the COVID-19 crisis are not yet a thing of the past. Nonetheless, it’s time to reevaluate your situation and set a strategic course for the year. Many of the changes we’ve experienced since the onset of COVID-19 will likely be permanent, so businesses have to proactively adapt to meet the demands of whatever comes next. Forecasting in 2021 will be an essential part of your organization’s success.
While the concept of forecasting isn’t new, the process will require more creativity, strategy, flexibility, and diligence this year. At first, it may feel like trying to predict the unpredictable, so it’s my goal to help businesses find a comfortable approach to forecasting in 2021.
The pandemic changed the way businesses in all sectors operate.
It’s time to take a hard look at how the pandemic has affected your industry, your target market, and your products and services. Is your overall industry struggling, maintaining, or is it thriving? Take a look at your competitors. Are their business operations faring well or even thriving? What are those businesses doing differently?
Forecasting in 2021 calls for a multi-scenario approach that examines each scenario’s potential effects on profitability. It’s not just about revenue; it’s also about costs and scalability. Government-mandated closures and social-distancing regulations have set some organizations back in terms of reopening. If your business is still determining the best approach, look at whether a phased reopening is the best solution or whether modifying your business model may help you reopen, at least partially, by virtual, physical, or a combination of means.
Evaluate your personnel model. Are you trying to bring back employees? How would moving part of your service online affect your personnel model and viability? Is there a need to outsource certain duties? Take a look at what you sell and provide. Do you offer services or sell products that are not in demand or that are becoming obsolete? Maybe it’s time to take a look at potential new product lines or services that may generate more revenue.
Everyone is trying to maximize the bottom line, but you have to factor in uncertainty.
Forecasting in 2021 won’t be as simple as comparing 2019 data to 2020. Businesses need to look at multiple scenarios, especially in the first half of the year. Look at what revenue, costs, and scalability will look like if your post-pandemic market is likely the new normal for your industry. Consider contingencies should there be another turn for the worse. What will profitability look like, for example, if the COVID-19 vaccine continues to roll out slowly? What impact would changes in your staffing, product lines, or services have on profitability?
It’s clear that 2021 forecasts will need to be expanded. Depending on their current financial standing and other factors, some businesses may opt for separate forecasts this year, based on different timelines. It’s always essential to plan for the long-term, but for 2021, keeping a close watch on the short-term is critical. It may be prudent to maintain 6-month or 3-month forecasts alongside your 12-month forecast this year. For the first half of the year, you may even consider monthly forecasts.
The right strategic plan and forecast model can help you develop the field vision you need to survive, and even prosper, during challenging times.
For organizations of all sizes and across all sectors, 2021 has brought new variables and countless unknowns to the table. Your organization needs a plan to identify potential risks and uncover hidden opportunities, and that plan should properly allot financial resources in support of your goals.
My business advisory team at LGA understands that no strategic business plan is one-size-fits-all. I help organizations in any stage of the business lifecycle and regardless of financial standing. I consider your financial and operational needs and the expectations and level of involvement of your CEO and CFO. I want to help your business expand or develop and implement a forecasting model that leads to health and prosperity in 2021. Contact me today to get started.
by Jim DeCesar, CPA
Jim is a principal with LGA. He works with businesses of all sizes to diagnose issues, establish processes, address risks, and achieve their financial goals. Jim’s public accounting and private industry experience allow him to provide clients with services ranging from financial and operational risk assessment, internal controls and process mapping, financial planning and analysis, tax analysis, and business strategy.