Advice from a CFO: Use Tax Season as a Springboard to Strategic Planning
Envision the Future Using Real-time Data and Analysis
During tax season our thoughts naturally turn to, well, taxes. But this is a great time of year for business owners to look to the future and do some strategic planning. We know the results of last year, and we have a full year’s worth of data to guide us. This is a time to think about the opportunities of the coming year, but also to extend our thinking around a three-year plan.
Perhaps the biggest thing 2020 taught us is that we can’t just draw one dot. There are multiple paths to reach our goals. We may have to adapt and change as market conditions shift or the broader economy presents either threats or opportunities.
Toward that end, it may be misleading to use 2020 business results for comparative purposes. If your business was hit hard by the COVID-19 pandemic and your revenue was down significantly, using 2020 data points as a benchmark could cause you to come up short when you set goals for 2021 and beyond. Consider looking at 2019 and even 2018 as benchmarks. See where the trends were headed before COVID-19 and ask whether they are still realistic.
Paycheck Protection Program (PPP) loans, the Employee Retention Tax Credit (ERTC) and many other benefits created by the Coronavirus Aid, Relief and Economic Security (CARES) Act are complicating factors in the 2020 financial results for many businesses. Talk to your advisors about how they will impact your results, your taxes, and your strategic planning.
If you switched gears in 2020 to respond to new marketplace opportunities that were created by the COVID-19 crisis – perhaps adding masks, personal protective equipment or hand sanitizer to your product lines – will those products still be profitable for you when business gets back to normal?
Revenue growth is one of the biggest questions to deal with when devising or updating a three-year business plan. There are some variables you can control, and others you can’t. Set a goal and a strategy to meet it but understand that at some point the strategy may not work anymore. Build flexibility into your plan so you can pivot to what your model should look like when it’s necessary to respond to realities on the ground.
To build maximum clarity into your plan, break down your business into different factors, such as clients and revenue growth, labor, overhead, and efficiency. You can work with your employees to make them more effective and you can invest in technology to create new efficiencies. But revenue is an outward market facing factor that you can’t always control as readily as you can with internal factors. You may need the flexibility to shift to a different customer group or tweak your product lines if traditional revenue sources just aren’t materializing in the changing market.
Best Practices
- Have clear goals. Know your sales goals for each month and stay on track to meet them. Communicate internally with your team about the goals, and if there are sudden changes in the market, adapt your goals and tactics.
- Consider investments in technology that can help reduce headcount and make production more efficient.
- Look at investments in infrastructure than could help your business grow. Businesses that have pivoted well in the past couple of years are investing in processes, procedures and systems that give them vital information to make better informed decisions.
- Maximize your use of real-time financial data. If you got something wrong in 2020 and you’re still unaware of it in the first quarter of 2021, that’s a problem. You can make decisions faster with real-time data because the decisions are based on data rather than guesswork. You’re not waiting for your tax preparer to tell you how 2020 looked because you already know. With real-time data, you’re building on your story throughout the year.
Using tax season as a time for a strategic reset gives a business owner a platform to envision the near-term and long-term future, utilizing current data to inform a new strategic plan. If you would like to discuss how you can maximize the value of your data, contact your Adams Brown advisor.