The end of an unbelievably tumultuous year is almost upon us. So, in preparation for what promises to be yet another eventful 12 months, I met with our team of CFOs for a lively Zoom meeting dubbed “Business Trends 2021.” Although we can’t predict the future, we can monitor the trends and we wanted to gather our collective insights to share with you.
Before we get started, however, I wanted to pass along some timely recommendations that were at the forefront of everyone’s minds:
1. Financial planning is critical to your success.
No matter what the future holds, taking stock of your current situation and developing detailed financial models and cash flow forecasts will help you weather the inevitable ups and downs. To ensure that you and your management team can anticipate and quickly adjust to a variety of market swings, include variable assumptions so you can easily perform “what-if” queries. For example, you could model the impact of an increase or decrease in orders then manage your resources proactively by renegotiating contracts with major suppliers.
2. Now is the time to prepare for tax season.
Don’t wait until 2021 to get ready for tax season. This applies to both your corporate and personal income taxes because you still have some time to fix problems and limit your liabilities. Check to ensure that you put away the appropriate retirement funds for you and your employees, for instance. And, if you received a PPP loan, it’s important to think ahead so you can be ready to complete the loan forgiveness application. You don’t need to apply now, we actually recommend you don’t, but you do need to collect the payroll and expense records for which your lender will inevitably ask.
Your business’s financial health is our priority. To help you determine what to plan for, below is our assessment of business trends to watch in 2021. Jump to the sections that are most relevant to you by clicking the links below.
Table of Contents
- The Continued Impact of Remote Work
- Cybersecurity Needs are Increasing
- Pandemic Recovery
- The U.S. Election Impact
- Company Valuations Are at an All-Time High
- An Uncertain Hiring Environment
- An Increase in Technology Spend
- The Business Impact of Climate Change
- Digital Marketing is on the Rise
- The Accelerated Rise of E-Commerce
Trend 1: The Continued Impact of Remote Work
Love it or hate it, in the wake of the Covid-19 pandemic, working remotely has become the new norm. This has forced many employers to rethink their policies and reconsider how they go about recruiting, vetting, and onboarding new talent.
Remote work is also having a trickle-down effect on other businesses. Real estate, for instance, is seeing a tremendous impact. Businesses are renegotiating leases or selling office space to take advantage of cost savings. And employees, who were previously required to live close to work, are moving to more desirable locations. This is driving costs up in some markets and down in others. So, what can you do?
Optimize Your Workforce
Although every business is different, there are plenty of potential opportunities to increase efficiencies. Enjoy the possible cost savings and a bigger pool of talent by tapping into the gig economy (we know a great outsourced CFO service we can recommend) and experienced remote workers. Then set clear expectations about performance to keep your productivity in check.
At the same time, don’t neglect the well-being and mental health of your loyal employees. Workers are struggling with longer hours, increased stress, childcare issues, and a lack of the equipment and skills required to be successful in a remote environment. Be sensitive to these challenges and come up with creative ways to encourage your employees to unplug. One area, in particular, where we’ve been seeing difficulties is new hires. Finding ways for new and existing employees to bond and engage is critical to the ongoing success of your firm.
Reconsider Your Office and/or Warehouse Space Carefully
While many companies are considering downsizing, we’d urge you to think twice before letting go of physical space. Use your financial models to explore the costs and benefits of reducing, especially if you might need to expand again as things evolve. Then, find ways to optimize underutilized space you can’t afford to eliminate.
For instance, many of our clients are setting up rotations so employees can interact with customers and each other in a safe and controlled manner. This can go a long way toward creating a sense of community and normality. Others are considering temporary arrangements, like subletting or using empty offices to house equipment. This will allow you to pivot quickly as the pandemic continues to unfold.
Test Your Financial Confidence
After partnering with over 100 clients, we’ve identified 11 essential questions to help business leaders make more confident business decisions.
Trend 2: Cybersecurity Needs are Increasing
Gaps in cybersecurity leave many companies vulnerable. You are legally responsible for protecting your customer’s personally identifiable information (PII), such as finance and tax information, medical history, etc. A lack of security leaves you exposed to lawsuits, HIPPA violations, and other liabilities that can affect your financial viability.
Small business owners are especially at risk. Hackers know small companies lack the resources to protect themselves and are becoming increasingly aggressive with their attacks. This leads to data breaches and downright theft, but there are ways to reduce your risk.
Invest in Insurance and Technology
Cybersecurity insurance is a must for any company responsible for sensitive customer data. This will protect you from lawsuits and the expenses involved in addressing a breach. However, every reputable insurance company will also insist that you limit your exposure by investing in the appropriate technologies. Such technology can be expensive and there are thousands of options to choose from, but a knowledgeable consultant can help you architect a solution that’s right for you.
Develop Clear, Written Protocols and Educate your Employees
In addition to insurance and technology, there are some internal protections you can put in place. Explicitly tell your employees what they can and cannot share via email. You’d be surprised at the information smart people divulge in this manner – information the entire world can see and subpoena. Classify data into levels of sensitivity and set up protocols for how you will store it and for how long. We’ve known companies that eliminate emails after a certain timeframe, but we’d recommend caution with this practice as it can be a red flag to auditors.
Trend 3: Pandemic Recovery
As the new year unfolds every business will be looking for ways to recover from the impact of the Covid-19 pandemic. Whether you thrived from an unexpected increase in demand or suffered a decline you must look to the future and prepare for the changes that will occur as we adjust to our new reality. We see a wave of restructuring coming as companies find new footing. Here are a few things to consider:
Bankruptcy Isn’t Necessarily the Answer
There’s plenty you can do to keep your business afloat and it often comes down to forecasting and protecting your cash flow. Gaining a 360-degree view of your financial situation can help you decide what to keep, what to reduce, and what to expand.
For instance, inspect each line of business and take stock of your assets so you can spot areas of waste. There may be opportunities to free up cash by selling off receivables or renegotiating with suppliers. You could also get creative with your workforce. Laying off unproductive employees so you can continue to invest in those who bolster your bottom line is one option. But, remember, we’re all in this together. Employees may be willing to take temporary pay cuts or forego bonuses and raises if it means keeping their jobs, especially if leadership does the same.
Take Advantage of Political Change
In the United States, businesses can expect some changes once the election is officially behind us. Covid-19 will likely be with us for a few years. Until we have a vaccine and deliver it to a large portion of the population, expect more restrictions and additional stimulus bills. As we move into 2021, the messaging should become more consistent and there will be less confusion around what businesses can and cannot do. Although we may not like the rules, we’re hopeful that this clarity will relieve some of the tension we’ve all felt. Our challenges will continue, but certain aspects of work and life will begin to feel more predictable as we settle into new norms.
Trend 4: The U.S. Election Impact
As we all expected, the U.S. election results are still under discussion. However, no matter who lands in the White House one thing is certain. The only way they’re going to get anything done is to come up with solutions that appeal to both parties. Furthermore, given the unexpected strain on the world’s economy this year, you can probably expect an ongoing financial hit. Whether it comes from an increase in taxes, a decrease in revenues, or both, we will all get to deal with the financial effects of Covid-19. What would we recommend given this uncertainty?
Tax Preparation is Crucial
We don’t know what tax changes will occur in 2021. But given the current low- tax environment in the U.S., we’d recommend taking steps to protect yourself when it comes to both your corporate and personal taxes. Meet with your financial and/or tax advisor to determine if you can minimize your tax burden and head off the potential impact of any changes by taking more income or paying off debt this year vs next.
Plan for the Unknown
Focus on the unique needs of your business and the policy changes that could affect it. For example, we’re overdue for another stimulus plan, but it may not occur until January or February. This could have an adverse effect on individuals and businesses who were counting on that influx of funds. If you haven’t already, consider setting up a line of credit so you have access to the cash you need to get through the next few months.
Also, despite the risk of higher taxes, there are certain businesses that could benefit from a change in the White House. During his campaign, for instance, Biden promised an investment in our infrastructure. This would suggest increased opportunities in the construction industry and for any business that feeds into that market. But it could also lead to a shortage of labor due to a higher demand for skilled workers in those industries. This would be a good problem to have, but it’s best to prepare for it.
Another area where we may see a change is in the supply chain. The high tariffs Trump imposed on Chinese imports resulted in hardship for many businesses. Should this be reversed, that pressure would subside, but at this point, we can’t count on it.
Trend 5: Company Valuations Are at an All-Time High
Despite the uncertainty we’ve experienced throughout the pandemic, one perplexing business trend is that the markets are at an all-time high as are company valuations. Not in all industries, of course, but in many. Does this mean you should be thinking about a sale? Or, would it be better to wait and work on your company in hopes of an even higher valuation later?
An exciting marketplace affects all sorts of things, not the least of which is the mindset of business owners and employees who are watching their equity grow. When companies are worth more, they have greater access to capital and can think about making investments that will lead to lasting, positive change. Perhaps you can hire more customer service reps or engineers, for example, to improve the value of your offering. Or, maybe you’d rather expand into a new market. What would we recommend given the current environment?
Develop a Capital Raising Strategy and/or an Exit Strategy
Parking cash doesn’t serve anyone, so there’s plenty of institutional money looking for a home. This is the perfect time to consider your growth plans and raise capital for your business. Furthermore, if you’re thinking to exit your business in the next 3-5 years, be sure to build that into your plans. Evaluate the state of your organization today and decide what steps you need to take to increase your company’s valuation.
Consider Balancing Pay Cuts with Equity
If the pandemic has had such a negative impact on your cash flow that you’re forced to cut employees’ pay and/or furloughs, consider softening the blow by giving them equity. Even if your company’s valuation is down, your loyal employees will appreciate the gesture.
Trend 6: An Uncertain Hiring Environment
As the winds of change continue to blow, many companies are looking at their hiring plans and scratching their heads. How can you plan for an uncertain future? While some companies are ramping up cautiously, unsure how long their good fortune will last, others are scaling back. How can you keep your valuable employees happy and engaged, while also taking advantage of the virtual workforce and growing gig economy that could temper your cash flow concerns?
Embrace the Changing Workforce
There has never been a more flexible employment environment. This means hiring and employee retention plans don’t have to look just one way. Many employees value flexibility, perks, stability, and healthy, inclusive workplace cultures more than a large paycheck. Look for ways to leverage this trend to your advantage.
You can also find valuable talent in untapped markets. Women rejoining the workforce after raising kids, older people who need to work longer than expected, and young people taking a break from virtual college. These potential employees have a lot to offer and can help you create a more diverse, rewarding, and innovative workforce.
Trend 7: An Increase in Technology Spend
When the pandemic hit, many companies hunkered down and business slowed to a crawl. But while some were scrambling to stay afloat, as the initial shock wore off others began to use this time to tackle projects. In many cases, that meant pushing forward with technology investments that could give them a competitive advantage. Installing a new enterprise resource planning (ERP) system, investing in cybersecurity, or moving an old on-premises solution to the cloud are just a few examples.
We expect this trend to continue. While we understand it’s difficult to spend money when times are tough, if your business is beginning to stabilize the future efficiencies and cost savings these investments can deliver can make them worthwhile. Furthermore, if your staff has the bandwidth to navigate the transition, this could very well be the best time to jump in. How can you get comfortable taking the leap?
Conduct the Right Due Diligence
If you’re moving systems, carefully consider the efficacy of your solution of choice. Shifting from an on-premises solution to the cloud, for instance, can introduce latency issues. Make sure you understand the potential impact on your solution’s performance. Also, sometimes a vendor will tell you they have a SaaS solution, but it’s clunky because they just went through a transition to the cloud themselves. Make sure your vendor of choice can deliver.
Lean on the Vendors to Show You the Value
Technology vendors understand that they need to demonstrate the ROI of their solutions, particularly in today’s economic climate. Ask them to help you through this process and to show you how and when your investment will pay off so you can decide if this is the right time to invest. They will likely have a team in-house who can help you identify the potential impact of their solutions and calculate the business benefits you can expect given your unique environment. Finally, they should also be able to provide (and show the impact of) a variety of payment options, so you can manage how the investment will hit your books.
Trend 8: The Business Impact of Climate Change
Climate change was a hot topic during this election cycle and while some businesses are reluctant to adapt, others are choosing to be proactive. Many feel that we have no choice but to listen to science, invest in renewable energy, and update our infrastructure so we can survive. They are choosing to treat this as an opportunity to create new jobs and adopt innovative, eco-friendly technologies so that millions of people around the world can reap the benefits of a healthier planet. How can do your part without hurting your bottom line?
Embrace the Future
Regardless of how you feel about this topic, planet-friendly business practices can have a positive effect on your fiscal well-being. Investments in environmentally friendly workplaces and production practices can deliver savings. Energy costs and tax credits, for instance, which can have a significant effect at scale.
Furthermore, if you choose to take a stand in this area it can improve your corporate image. The younger generation is keenly aware that they are about to inherit the mistakes of the generations that came before them. They are looking to the future and are making decisions about their purchases and employment options that favor companies with environmentally responsible practices.
Trend 9: Digital Marketing is on the Rise
Now that in-person events have come to a halt and the future is impossible to plan, companies are turning to digital marketing as the only viable way to generate business. This side of marketing can seem overwhelming because it encompasses social media, pay-per-click (PPC), search engine optimization (SEO), affiliate marketing, email, and a whole bevy of other options. Furthermore, none of it works without killer content, so you need to invest in writers, developers, and/or graphic designers before you even start. Still, it’s an exciting world where many of our clients are finding success, so here’s what we’d suggest:
Set a Budget
Think about how much you were spending on in-person events, whether they were trade shows, meetings, or speaking engagements. And, don’t forget about the expenses incurred for travel, lodging, meals, and even lost productivity from having employees otherwise engaged. Whatever you’re not spending now, can be the start of your digital marketing budget.
However, keep in mind that the content you create isn’t an expense as much as it is an investment. You will be making changes to your website, writing SEO optimized content, and updating marketing materials. All of these things have a longer shelf life than a single event.
Let the Data be Your Guiding Light
Determine which channels are most relevant for your target audience and how long you can wait to see results. If you’re in a hurry, consider paid social media advertising or PPC. If you have some time, however, take advantage of organic opportunities, like SEO. Organic methods take more time to produce results, but they cost less and deliver a return long after you do the work. Either way, start small, measure the results, and iterate from there – investing more in the things that work and shifting funds to new channels if others flop.
Trend 10: The Accelerated Rise of E-Commerce
E-Commerce, which was already taking over, is now going through the roof as people are staying home and ordering what they need online. This has had an incredible impact on supply chains, logistics, systems, data, margins, and, well, pretty much everything. We knew this shift was happening, but now it’s happening all at once, quicker than expected, and it’s having a devastating effect on retail. What can you do as we move into 2021?
Adjust Your Strategies . . . . Quickly!
What you may have thought of as a strategic shift that would play out over time, has now become urgent and you must adjust. If you are a retail company, for instance, that was treating e-commerce as a growing side of your business, you will need to rebalance, reduce your inventories, and let go of any unnecessary physical space that’s weighing you down.
Even companies that are not in retail will experience the effects. Federal Express and UPS are at capacity. If the demand on their resources continues to rise, you can expect a backlog for deliveries which could inhibit your supply chain. Plan for this so you can mitigate the risk and minimize the effect of these challenges on your business.
Business Trends 2021: The Bottom Line
2020 was a whirlwind and our challenges will stay with us into 2021. Financial forecasts are always important, but during uncertain times they’re critical. Determine which of the above business trends apply to you, then build them into your plans so you can make sound financial decisions.
Also, don’t forget to prepare for tax season. The only thing that’s certain about 2021 is that we can expect to see more change. Take the opportunity now to protect yourself and to fix any issues so you can move into the new year with confidence.
At The CEO’s Right Hand, we work with our clients to find and resolve a myriad of financial challenges. Reach out anytime to learn what we can do for you.
For additional insight, please see Financial Planning 2022: Business Trends That Could Affect Your Strategy.