Nobody saw 2020 coming.
If your business lost money this year, you’re not alone. While leisure, travel, and hospitality experienced record setbacks, small businesses across industries suffered amidst shutdowns and social distancing guidelines. If your business has been able to stay afloat in 2020, you’re one of the lucky ones.
Still, it’s normal to feel somewhat panicked when you see the numbers. And if you’ve kept the proverbial doors open this far through cash reserves, personal investments, or PPP loans, you might be considering big changes to offset your financial losses.
But before you sell your business or take extreme cost-cutting measures in 2021, it’s important to evaluate both the short and long-term effects of your losses. It’s important to consider where 2020 fits into the overall financial narrative of your business.
How Do I Get Back to Where I Was?
Many of our business clients ask us a question that sounds like this: how do I get back to where I was?
And it makes sense. Maybe you started the year with momentum or maybe you had big plans. You’re definitely not the only person wishing for a time machine.
As business and accounting advisers, we believe there are better questions to ask with answers whose outcomes you can actually control. Instead, try asking yourself:
- Is there now an opportunity to pick up market share by doing something different?
- Can I expand my offerings?
- Do I have premium offers to offset losses if my standard offerings disappear?
- Is there new talent available to hire because my competitors cut costs and let people go?
How will you make your company a winner?
In every global situation, there will be winners and losers. It’s worth asking your leadership team: how can we make our company a winner?
In 2008, a regional sprinkler company was trying to weather the worst recession in modern history. Rather than cutting operational expenses, the CEO chose to save his entire sales team. When their competitors closed doors for good, they used their cash reserves to effectively buy top salespeople from their competition. When the economy recovered in three years, this business went through the roof because they had every major salesperson in the Orange County landscape industry working for them.
Tax Relief May Not Be the Right Word
In the state of California, there hasn’t been widespread tax relief that applies to the diversity of businesses across our state. There are some provisions, such as a 3-month tax extension for businesses that earned less than one million in sales tax and interest-free, penalty-free tax payments for those with up to 5 million in sales tax revenue.
But the relief doesn’t help businesses struggling with cash flow or service-based businesses that don’t charge sales tax. Additionally, eligible businesses who accepted PPP loans to make payroll this year still owe taxes on the very money they needed to keep their doors open. Fortunately, there are steps you can take to infuse cash back into your business beyond tax relief.
Something you can do now is ensure that your bookkeeping is clean, complete, and ready to deliver to your accountant at the start of January. While electronic filing doesn’t happen until mid-February, this will still put your business at the head of the line for an early return.
Additionally, you may see some of your 2020 losses returned by something known as a loss carryback. This process allows a company to apply a net operating loss to a prior year’s taxes, resulting in an immediate return by reducing the tax liability for a previous year.
It’s smart to work closely with your bookkeeper and accountant to ensure you count every expense and take every qualifying tax credit. But equally important is what you decide to do with the opportunity you have because of 2020’s limitations.
What if this year isn’t the worst thing to ever happen to your business?
Not every financial loss can be attributed to economic downturns or worldwide pandemics. While some companies like Zoom and Peloton skyrocketed because their offering uniquely met the current crisis, business innovation has long been the result of failure.
The business communications platform, Slack, was originally a technical feature engineered for a gaming platform. When its founders accepted that Glitch couldn’t gain market share, the tool we know today as Slack was born. From one failed initiative, the founders pivoted to create a company whose revenue exceeded $400 million in 2019.
Navigate 2020 Losses with 2021 Strategy
We’ve learned a lot this year. And it’s only a wasted experience if we don’t apply what we’ve learned to the future. There’s no magic bullet to hurry up the economy, but there are key strategies that you can start applying today.
- Identify if your competitors are losing any key employees that you can pick up.
In addition to job cuts, not everyone is taking care of their employees. Adding top talent to your workforce could be the next best thing to ‘getting back to where you were’ because it’s a way to get ahead of the competition in the future. - Can you bring in more top-line revenue?
When operations slow, it gives you more time to build your pipeline based on your current client list. And likely, your salespeople have more time to start building those relationships than when business was booming. - Look back to your 2020 projections.
When you review your projections made for 2020, how did you come up with your numbers? Sometimes companies have a plan to grow but don’t have a plan for how that will happen. Make sure you have a growth plan that includes a strategy and a way of making solid projections. Construction companies look to architect’s plans to predict future contracts in the next quarter. What are your predictions based on?
There are so many directions you can choose in 2021. But crazy town doesn’t have to be one of them. Instead, dedicate the time you need to make strategic moves that make sense for next year and the one after that.
Conclusion
We hope you found this post helpful as you create your 2021 strategy. If you enjoyed this post, you might also enjoy our post on outsourced bookkeeping.
If you are looking for outsourced bookkeeping services in Newport Beach, San Francisco, or Walnut Creek, California, consider WCH CPAs. We’d love to work with you!