Even the most realistic budget can wobble from time to time when faced with financial challenges that arise as a result of an unprecedented event. Is your budget ready to handle the up and down swings brought on by the pandemic?
Recently, many business owners have found themselves needing to manage their cash flow and juggle their expenses as priorities have shifted and unexpected expenses and limitations have given way in these unnatural times. Many businesses have found that their entire budgeting process is now irrelevant and needs to be updated or replaced with a version that is better suited to their current operating needs. Building a realistic and practical budget can save a sinking firm. This pandemic has solidified the importance of having emergency funds on hand to ensure a comprehensive response. It’s evident in almost every community, some businesses have closed shop while others, mostly those that have found a way to adapt their budget to current limitations, are beginning to re-open their doors. Chances are, your business has been affected, if not temporarily shut down in the pandemic. Whatever the nature of your business, your earnings have probably fluctuated these past months due to the new regulations, or decreased consumer traffic. Unless you have found an alternative to maintaining your cash inflow, a little tweak to your budget can go a long way in helping your business secure its financial future. Whether your small business consists of hotels, constructions, apparel, essential commodities, services, or retail, the fact is that any endeavor to restructure your budget will improve your overall financial situation. Let’s look at some steps you can take to build a realistic budget to survive the turbulent times ahead in a pandemic-hit economy while awaiting a return to normalcy.
Assess your income and expenses
The best way to kickstart restructuring your budget so it will realistically support your operations amidst COVID-19 is to map out all your monthly expenses and set a new benchmark for your income in huge losses. Compare your cash inflow and outflow, and accordingly, step out to formulate a budget building plan.
Re-evaluate your emergency fund
Once you’ve become aware of your business’ financial deficit, you need to look at what you have in savings that you can rely upon to avoid bankruptcy. Ideally, businesses should maintain an emergency fund—a cash reserve covering three to six months’ worth of operating expenses. Although these emergency funds can be tempting to use during non-emergencies, they are necessary for your business in unpredictable situations such as the one we currently face. It is never too late to re-evaluate your emergency funds to keep you afloat, shall another pandemic hits again. If you weren’t aware or didn’t believe in the benefits of an emergency fund before COVID-19, you need to build one as soon as possible to shield your business from any future shortfalls.
Eliminate or reduce your non- essential spending
Another way of reducing your financial deficit is to cut spending on anything that’s outsourced. Cutting the extras out of your budget such as certain unnecessary expenses—for example software subscriptions you don’t use often or unproductive sales channels- can help you prioritize other important business-related expenses to carve out a balanced, realistic budget. An emergency like COVID-19 has made it necessary for businesses to prioritize expenditures. However, the pandemic has also made cutting out non-vital expenses less of an ordeal due to the flexibility of many providers in adjusting their payment terms and service cancellation options, practicing social distancing, and working from home. After cutting down your monthly expenses, the next step requires you to look out for opportunities to reduce costs. Analyze your expenditures and make out where the larger amount of your spending is utilized—strike that target and cut on those. For instance, small businesses usually spend a majority of their income on office rents. Even during the pandemic, with 70 percent of your productivity cut short, you pay the same rent. So you could consider downsizing your office or using a co-working space to have a more affordable workplace, or even fully embracing the new work-from-home ethos and converting your in-office workforce to a remote one.
Set fresh goals for your business
Setting unrealistic, ambitious financial goals for your business might not be the best idea when struggling to recover from COVID-19- caused losses. Your previous investments and financial goals may no longer be viable, and these types of setback can indicate that you need to reconsider how you do business. In these cases, it’s important to reevaluate your business model to make it capable of surviving the financial roller-coaster ride powered by the pandemic. You may want to monitor your customers’ psychological and financial behavior for the post-pandemic era—what will and what won’t matter to them anymore, so as to gain a better understanding of how you can most effectively attract new customers and set appropriate business targets. Business owners need to get creative in order to find ways to tweak their service and product offering so as to make the pandemic work to their benefit. You might find yourself needing to do a bit of brainstorming to establish new operational models in the wake of the coronavirus pandemic, especially if you operate in one of the heaviest hit consumer markets. With the onset of the mass digitization of the US economy and emergence of a new work-from-home trend, businesses should be looking for new ways to digitize their products or services, or start re-evaluating their online and social media presence. With these minor changes, you can employ technology to help mitigate any loss of earnings by offering new ways to connect with and serve your customers, and maintain strong customer relationships despite the need for social distancing.
Explore financial forecasting
You can’t predict your business; however, as business owners, you can take insights from financial forecasting to build a budget that takes into account recent trends and projections, so that you are prepared for the impact these factors and changes will have on your cash flow. Forecasting can help your business bounce back financially with expediency and help you build a strong foundation for a realistic budget. Effective forecasting can help estimate your business’s future financial health by analyzing and comparing past financial reports—which include estimating and comparing your business’s income, expenditure, profit and loss statements, and cash flow. Altering your existing budget plan according to what you found in your financial forecasting will leave your business better prepared to take on potential future emergencies.
Make a three-month financial plan
Small businesses usually have more or less the same key expenses, a larger chunk of which goes towards paying your employee’s salaries, office rent (if applicable), and other utility bills. Additional costs, however, vary from business to business. After you have evaluated your business finances, you need to discuss with your vendors and those that have extended you credit to see if it is possible to negotiate better terms to reduce your monthly expenditures. It is recommended that you propose fair payment plans with your vendors, as many may also be small businesses that also need to keep afloat.
Assess, or upskill your staff
Assessing your staff to determine if there are cuts that can be made can sometimes take an uncomfortable turn since they rely on you. However, sometimes it is the only necessary option available when struggling to take back control of your business’ finances. This includes evaluating performance, checking for duplication of duties to reduce staff, determining which employees are essential for generating profits, which are the best performers, and which fulfill more economical tasks. It may also mean having to let go of some of your employees or reducing the number of shifts or working hours for others, to save indirect expenses involved. You could perhaps halt the hiring process for full-time employees and look instead to work with freelancers on an as-needed basis. However, if you do not find the above solution suitable, you could opt to engage your existing staff in gaining new and additional skills. Although this may require some initial investment, upskilling your current staff, rather than hiring new employees, can help to stabilize finances in the long run. This could make your existing workforce more productive, efficient, and versatile. For instance, your sales team could perhaps also help the marketing team enabling you to save more on marketing professionals. Also, your staff can do this from the comfort and safety of their homes as well, without stepping out into the virus-infected outdoors.
Final Thoughts
There are several advantages to optimizing your budget to suit the post-pandemic markets. Building an emergency budget for the long term in a pandemic—when everyone is going through a tough financial phase and anticipating a loss- can be critical in the pandemic response strategy. However, you should not wait until you are affected by something like a pandemic to kick-start your budget optimizing plans. Proper budgeting is an equally important task that you should implement and evaluate regularly, for business losses are unforeseen. It will ensure the wellbeing of your business and will help you reap benefits in the long run. Our business budget planning experts offer free virtual consultation services. They have a knack for realistic budget planning. After analyzing your situation and trying to understand your circumstances, they will formulate a personalized budget that you can follow immediately. If you’re looking to consolidate your debt or restructure your loans, get help from a business debt expert like Creditors Relief. We’re willing to advise you with your debt-relief options, and our review process is free. Sign up here.
