Adapt or Die – Budgeting and Costing in a Pandemic: Part One

When confronted by his head scout about challenging baseball norms, Billy Beane, former Oakland A’s general manager (and featured in both book and movie), famously responded, “Adapt or Die.” As we reflect on 2020 and the changes that occurred as a result of the COVID-19 pandemic, that phrase, “Adapt or Die,” has never rung more true. Companies of all industries, shapes and sizes were forced to pivot to the new reality around us. Some businesses weakened, some treaded water and others experienced phenomenal growth. As a result, 2020 was a year of constant reaction, responding to regulatory changes, customer demands, labor shortages, safety measures and a complete upheaval of the “5-year plan.”

Throughout the pandemic, companies reacted with drastic cost-cutting measures and by taking advantage of government programs, such as the Paycheck Protection Program (PPP) and Families First Coronavirus Response Act (FFCRA). They increased investments in technology and automation, shifted supply chain closer to home and improved their supply chain visibility. When forecasting into 2021 and beyond, companies can no longer take a business-as-usual approach. Business leaders need to be agile, forward thinking and communicative with all aspects of their businesses. Companies should have an increased focus on budgeting – even when trying to predict the future may be extremely difficult.

Remaining Agile and Forward Thinking

While 2020 was a year of reaction, 2021 is the year to be proactive. When forecasting in an unpredictable world, companies need to take a holistic look at their business. What does your business look like now? What should it look like? It shouldn’t be a surprise to say that existing plans, estimates, corporate strategy, vision and budgeting will need to be restructured. With the disruption that the pandemic brought, workers were scattered, scared and uncertain about their futures. Great leaders were able to quickly organize their workers and paint a picture of clarity. Employees looked to corporate leadership to address safety concerns, job security and clearly communicate the direction of the company during the pandemic. As a business leader, ask yourself:

• If you built your business today, what would it looks like?
• Do you want your business to return to the way it was?
• What is your industry’s outlook?
• Have the barriers to entry in your industry changed? Is competition easier, harder?
• If there is a return to normal, what does that timeline look like? Is it one year, five years or 10 years, and how does that affect your decisions?
• What changes are permanent vs. temporary?
• Do new opportunities exist? Are you able to access different markets now? Are certain markets closed?
• What costs or programs did you cut during the pandemic? Do they need to be re-implemented?
• What are your competitors doing?
• What does your new cost structure look like?
• Are your products priced appropriately?

How to Predict the Unpredictable

You don’t. What you can do, however, is predict that the unpredictable will occur. Knowing, or planning, that something will occur will allow your company to quickly and effectively deploy resources when and where they are needed most. Consider including a contingency or certain amount of unallocated resources in your budget. Make the contingency funds flexible or volume-based so they can be adjusted as needed. The amount of resources left unallocated will be different for every company based on the level of disruption from the pandemic, your risk tolerance, trust in leadership, your liquidity and access to capital.

Because of the amount of change and disruption brought on by the pandemic, companies have evolved. Your accountants, bankers, attorneys and other advisors are here to help during these times. Sikich is one of the country’s top 30 Certified Public Accounting firms and a top 10 value-added reseller of technology products. We offer complimentary services ranging from business succession planning, human capital management, audit and assurance, marketing, security and compliance, among others – we’re here to help you embrace your unique adaptation to today’s unpredictable world.

For more tips on budgeting in an economic downturn, please read Part Two of this article next week.