Revisiting your Budget in uncertain times
2020 thus far has certainly proved a year filled with some unexpected turns and tribulations. For most businesses the far-reaching effects of the COVID-19 pandemic has had a severely adverse impact on their financial wellbeing. Whatever budgets and cashflow projections were done pre COVID will have to be updated and adjusted, but with so much uncertainty still about where do we start?
First step is to pull out the latest budgets and cashflow projections and to assess how far we have veered off course.
Remember that your budget needs to account for fixed and variable incomes and expenses, and much of this may have changed over the last few months.
- Fixed expenses include rent, utilities, phones, internet, accountant & legal fees, technology related expenses, salaries, advertising & marketing.
- Variable expenses include costs of goods and commissions
Next step is to take a deep breath and to determine the actions that will yield the quickest and most transformational, immediate results. Then determine the immediate actions for longer term sustainability.
Lastly you will need to update your cashflow projections to evaluate the viability of the intended intervention actions.
It is important to avoid knee-jerk reaction decisions. Base decisions on transformational and sustainability value. Ask for help and enlist the services of professionals.
Make sure your budget covers it all
- Examine your different sources of revenue
- Subtract fixed costs
- Determine variable expenses
- Set aside provision funds
- Make a profit & loss statement
- Create your projections
Keep the following in mind when revisiting your budget
- Identify and involve decision makers in the organisation and involve them in the budget adjustment process.
- Use technology to coordinate and consolidate the budget
- Create a budget that reflects the organisations’ strategic plan.
- Identify issues quickly and create a plan for immediate resolution.
- Define and understand your risks – list your guaranteed monthly income and expenses to understand your risks
- Don’t underpay yourself
- Overestimate expenses –projects often have costs that were never anticipated
- Pay attention to your sales cycle – understand to impact of busy & slow periods
- Time is money – timing underestimation directly increases costs
- Involve your employees – keep employees updated on short- & long-term financial goals
Remember the benefits of budgeting
- Projects annual expenses but allows you to see the costs as they occur
- Assists with managing cashflow
- Forecasts bottom-line using more than one revenue stream.
- Price setting
- Before setting prices, you need to know your manufacturing and overhead costs
- A budget allows you to project operational costs such as rent, utilities, wages and marketing
- Budgets identifies areas where you can reduce costs
- Capital and credit procurement – securing finance
- When sourcing finance for your business, financial records are required. These financial records include budgets, management accounts, asset & liability reports and annual financial statements
- Budgets allows you to track the business’s performance throughout the year, allowing you to make the necessary adjustments as required. For example, if sales are slow the budget will identify areas for possible adjustments such as cutting costs.
For a budget to have any value, it is important to measure the budget against actuals.
Remember that the budget is a roadmap, not set in stone. It is there to guide you and in the initial phases may be adjusted several times before you have the final version that will be applied annually. It is important to understand the data reflected in the budget and to have the agility to change where need be. Experience in business will guide you when to implement changes and when to ride out certain turns in business.
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