Protecting Your Business After Covid-19

As the pandemic begins to fizzle out and return-to-work guidelines are put into place, you must consider how you can protect your business assets from post-pandemic liability. As is best practice, follow OSHA’s requirements for small business owners to the letter and implement ways of tracking COVID-19 outbreaks among your employees.

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Post-Pandemic Estate Planning

For business owners, planning your estate is a critical asset protection maneuver. Estate planning entails much more than wills and trusts; effective estate plans provide essential provisions that allow trusted associates to manage your business in the event of incapacitation or death. Put simply, a proper estate plan is the key to protecting a business across generations.

In a post-pandemic world, your estate plan should include:

• Will and Trust: The will and trust form the most crucial part of a proper estate plan. A will can ensure that your assets are distributed according to your wishes upon your death, and a trust can protect your assets from the brunt of estate taxes or legal battles.
• Durable Power of Attorney: Drafting a Power of Attorney (POA) ensures that you can choose who will take charge in executing your will should you become incapable of doing so. If your estate plan doesn’t include a POA, the court will choose somebody on your behalf—and they may not share your vision for your estate.
• Healthcare Power of Attorney: Commonly abbreviated as HCPA, this typically puts a spouse or family member in charge of all healthcare-related decisions on your behalf. Usually, an HCPA is invoked if you ever become incapacitated.
• Beneficiary Designations: Designating a beneficiary will allow someone to be put in charge of your assets and possessions that are not dictated in your will. Named beneficiaries must be older than 21 years of age—and must be deemed mentally competent.
• Guardianship Designations: If you have young children or are planning on having children in the future, designating a guardian is essential when planning your estate. In the event of your death or incapacitation, your designated guardian will raise your children in your stead. It is essential to appoint a guardian who you feel comfortable with raising your children. If no guardian is named, the courts will decide who obtains guardianship.

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• What Is Zero-Based Budgeting?
• Zero-Based Budgeting Example
• What Are the Advantages of Zero-Based Budgeting?
• What are the Disadvantages of Zero-Based Budgeting?
• How to Start Zero-Based Budgeting
• The Zero-Based Budget Renaissance
• Is Zero-Based Budgeting Right for Your Business?

What Is Zero-Based Budgeting?

Zero-based budgeting is a budgeting philosophy that entails allocating precisely 100% of income to covering expenses. The name comes from this philosophy’s core tenet—at the end of each budgeting period, the total revenue minus total expenses should equal zero.

Zero-based budgeting provides an alternative to traditional budgeting, which calls for incremental increases over previous budgets. Traditional budgets, or line item budgets, tend to fall short because it focuses mainly on new expenditures. Zero-based budgeting, however, shifts the paradigm so that you need to justify every single expense with each new budgeting period. The result of this added need for justification is a more informed, less bottom-heavy budget.

There are five fundamental characteristics distinctive to zero-based budgeting:

1. Within an organization, all levels participate in the decision-making process.
2. Items are broken down into “business units”.
3. Each unit is given a value (the cost it will incur) that it must justify in order to make the final budget.
4. Units are further assessed based on their alignment with corporate objectives.
5. The budget must be flexible and accommodating of instant adjustments, if necessary.

The reason for using business units instead of departments is because the zero-based budget philosophy emphasizes revenue-generating activities instead of operational departments.

Zero-Based Budgeting Example

For the sake of example, let’s take a look at a small car rental company. After each rental is returned, the car needs to have its interior cleaned. This company has been contracting this out to a private cleaning company for the past five years. 

After implementing the zero-based budget philosophy, the business owner looks at older, recurring spending to trim some fat and hit net zero. After poring over his financial statements, he finds that the contractor has been raising their rate by 3% each year—and at the current rate, it would be cheaper to hire a full-time, in-house cleaner.

This is where zero-based budgeting shines; old expenses such as startup costs tend to fly under the radar when crafting a traditional budget. Over-budgeting is very common, and if previous over-budgeting is not addressed, budget bloat can multiply with each incremental revision.

What Are the Advantages of Zero-Based Budgeting?

As previously mentioned, zero-based budgeting provides business owners with the necessary perspective to slash old, unnecessary expenses and reallocate these funds to more profitable items. In addition, zero-based budgeting is conducive to increased budget flexibility as less money stays tied down in the old budget bloat.

Zero-based budgeting is also a natural fit for growing companies. Many business owners find that as their company grows, expenses outpace revenue, and the gap widens as growth continues. A commitment to maintaining a zero-base budget will allow for controlled growth without saddling your business with debt.

What are the Disadvantages of Zero-Based Budgeting?

Zero-based budgeting isn’t without its share of disadvantages. For example, putting together a zero-based budget is time-intensive and arduous. Without the proper prudence, it can quickly become a recurring time-suck for your accountants.

Additionally, some may argue that a zero-based budget is a shortsighted tool. After all, it is conducive to reallocating funds to currently profitable items. If your business is constantly shifting around its spending to address momentary needs, it may result in inefficiency or even obscure your long-term vision. 

Zero-based budgeting also only works if the budget is crafted by those with the business’s best interests at heart. It is possible for somebody to fabricate justification of a pet project in order to over-allocate funds to that project.

Related: Catch-Up Bookkeeping

How to Start Zero-Based Budgeting

If you are thinking about implementing zero-based budgeting for your business, you must first weigh whether it is the right move for you at this point in time. Consult with your accountant or consider the following:

•     Do I have the time and resources to set a zero-based budget at regular intervals?
•     Do I trust the person setting the budget?
•     Are there opportunities to redistribute old spend to new items?

If you answer yes to all three, then setting a zero-based budget may be worth a shot. If you are still on the fence, consider building a traditional budget for the time being. If your expenses are larger than your projected revenue—or if you want to spend more on new items than your budget allows—consider going the zero-based route.

After deciding to set a zero-based budget, follow these three steps to prepare yourself for what comes next:

1. Ascertain your income so that you know exactly what you’re working with.
2. Look at past financial statements to forecast your expenses.
3. Categorize these expenses and sort them into a hierarchy by priority.

After you have finished, you can begin building your zero-based budget yourself or with the help of a specialized small business or startup accountant.

The Zero-Based Budget Renaissance

In today’s tech-focused era, the zero-based budget has experienced something of a rebirth. The proliferation of centralized data repositories for finance has allowed for greater transparency during budget negotiations. In addition, advancements in data analytics have led to more accurate budget estimates. These developments are highly conducive to crafting better zero-based budgets that save more money than ever.

Is Zero-Based Budgeting Right for Your Business?

The answer is maybe. Like most business decisions, the zero-based budget philosophy needs to be considered before it is implemented. When making any decision that may have a significant impact on your business’s financial future, it is always a good idea to consult a professional accountant. Sign up for a consultation with FinancePal today to talk through your options with one of our expert small business accountants!

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