How to Approach Business Budgeting in the Wavering Times

How To Address Business Budgeting In Uncertain Times

Business budgeting is one of the best ways to prevent financial burdens or even financial disasters. If you, too, are struggling with managing your business budgeting in the era of COVID-19, where the economy is taking an unpredictable path, worry not! We are here to share some business budgeting tips to ease your burden.

What Is Business Budgeting?

First, let us know what exactly is business budgeting before proceeding further.

Business budgeting is a yearly plan of your income and expenses; it helps determine your capital, costs, and estimated revenue. It can become a great help with planning your business activities and establishing goals.

It can help you with accomplishing both short-term and long-term financial goals.

Why Business Budgeting Is Important?

• The owner can focus on the cash flow, reduce costs, increase the profits, and return on the investments with business budgeting.
• Business budgeting helps with the growth of the business by controlling and planning the cash-flow.
• It makes sure that the company funds its necessary commitments.
• It helps the owner make confident business decisions and makes sure that the firm has the necessary funds for future assignments.
• Business budgeting approximates revenues, necessary expenditure, and controls any out-flow that is out of the plan.
• Business budgeting ensures that the business uses its funds on the projects they are supposed to.
• Business budgeting explains the priorities of the business.
• Including the staff in the business budgeting process will make them feel belonged and essential, resulting in more dedicated efforts from their side.

Component Of A Business Budget

Estimated revenue is projected sales minus costs. Fixed costs are consistent, while variable costs adjust with demand. Cash flow tracks in-out funds. One-time expenses are unexpected. Profit equals revenue minus costs.

Estimated revenue

Money that your business expects to make after selling good and services.

Two main components of the estimation of revenue include sales forecasting and approximation of the cost of sold goods and rendered services.

The more experience you get, the better you become in the art of estimation.

It does not matter if your business is ten years old or not even a year old; however, the estimation process should be realistic.

Fixed costs

The same amount to pay regularly is called fixed cost. For example, rents to pay for the building, mortgage, payment for utilities, employee’s salary/wages, internet services, etc. Including these expenses into the business, budgeting is essential as you can keep the fixed costs aside to frame these expenses.
If your firm’s finances are not going accordingly, it can become a reference to check the issues.

Variable costs

Variable costs are those costs that keep on wavering with the success of your company. For example, you sell goods in the market; it has started getting more popular. The demand increases, and so does the production; you will need more labor and raw material. Hence, your variable costs increase.

Cash flow

These are the finances that pass in and out of business. You can compare the cash flow by comparing the current one with the previous one to get an idea about your recent cash flow changes.

One-time expenses

Unexpected costs occur in any given year, for example, replacing a broken laptop, replacing an obsolete asset, fixing a broken machine, etc.

Profit

You get the profit by deducting the estimated cost with the revenue made.

1. If your profit increases, your business grows.
2. If your profit decreases, your business is at a loss.

Once you start making a profit, you get the idea about future investments you could make; suppose your profit increases, you will invest more in promoting your product to increase sales.

How To Do Annual Business Budgeting?

• Work with the most relevant information you could find: use the accurate data to use in your budgeting, such as your company’s sales analytics, factual financial statements, etc.

• Determine what your key business influencers are: it is essential to identify your critical business influencers like sales leads, number of employees, other internal efficiencies as this can be crucial towards impacting your business growth.

• Identify the upcoming known financial changes: make sure that your business budget projects every forthcoming expense. For example, if you are thinking of changing the location, adding a new asset, hiring new employees, etc., the budget should mention these expenses. 

• Put it all up together: make sure you include- revenue, cost of goods sold, operating costs, gross profit, capital expenses, net income.

What To Do During The Pandemic

• Anticipate a Long-Term Unpredictability around the market situation

The pandemic has impacted every industry, some have escalated, and some have descended. 

You might foresee the future market conditions, but you need to expect a long-term unpredictability as well.

• You may have to postpone your growth plans

You have to ask yourself first if your pre-pandemic goals are still applicable. Do they need to get aside, or is this the right time to make a new growth strategy?

Some questions include but not limited to:

Can you afford to hire new employees to accomplish your pre-pandemic goals?

Does your company system rely on face to face interactions with the client? (can social distancing become a hurdle?)

Can you outsource employees?

• It may become hard to secure funds

If your business mostly relies on the funds from outside, make sure how easy or difficult it will be to secure the necessary funds as the investors tend to become more cautious during times like this.

• Address the uncertainties in the budget

Addressing the unpredictable situations in the budget can become a boon for your business as you will be expecting this scenario already and suitable solutions to it.

Assess your crucial business influencers again.

You know what influences your business in the regular time, and based on the last six months’ data, you can calculate how the pandemic is affecting humankind and the economy. 

You have to plan out how the pandemic will affect your critical influencers in the next twelve months.

• Forethink for the various scenarios

Built on what could happen to your crucial business influencers, create multiple narratives of your budget, and plan out to navigate the best and worst-case scenarios.

• Adjust your growth plans accordingly

Now it is time to revisit your pre-pandemic growth plans and make necessary changes.

You can ask yourself if, depending upon your current cash reservoirs and revenue predictions, what growth targets are you planning to hit in the next twelve months?