COVID Impact - How to plan for 2021

There is no denying that COVID had an impact on most businesses. Now more than ever it is crucial to have a plan in place to prepare for the upcoming year. It’s important to understand the impact COVID had on your business to be able to identify what assumptions need to be taken into account for next year’s budget.

To determine the impact COVID had on your business, you will need to pull at least two years of historical data and review the trends (preferably monthly trends) for Volume, Revenue, Direct Expenses, Overhead, DSO and Payable days.

When looking at trends focus on profitability ratios and operating performance ratios. This will give you an understanding of what is normal for your business. Don’t forget to factor in seasonality and any one off events which might had an effect on your business.

Now that you have a baseline, pull the same ratios for 2020 by month. You will want to determine the percentage of volume/revenue which was contributed to COVID. Follow the same logic for DSO and Payables. For instance, did you have more flexibility paying vendors? What do you anticipate payable terms will be? Did your receivable days go up? Make sure you account for this changes as they will have an impact on cash. Compare historical trends to 2020 and determine what your cash needs will be, what you anticipate revenue and expenses to be based on your COVID assumptions. A budget is an assumption of where you think your business will be the upcoming year, use your best judgement.