By Stephanie Raimbert
What is a business budget?
A business budget is an essential part of your small business, whether it is to start a new business, maintain a strong business, and expand a profitable business. Every small business must have a business budget, which lets the owner know how the business is performing and puts you in control of your business. A business budget outlines your business’ financial and operational goals which helps you to allocate resources, evaluate performances, and formulate plans. Once your business is established, budgeting becomes a regular task that normally occurs on a quarterly and/or annual basis, where past budgets are reviewed, and budget projections are made for the next three years. A budget should include your revenue, your costs, and – most importantly – your profits or cash flow so that you can figure out whether you have any money left over for capital improvements or capital expenses.
Impact on Business Budgets during the Coronavirus Crisis
The coronavirus has fundamentally altered the market and ultimately the economy as a whole. There has never been any more reason to try out new business strategies that are outside of your comfort zone but could essentially save your business. Some small businesses have implemented an emergency budget by minimizing travel and non-essential spending, canceling subscriptions that aren’t critical, and pausing any large projects that can be put off to a later time in order to cut a lot of costs. Businesses that have been aggressively paying back debt should consider switching to making just the minimum monthly payments required to protect cash flow and making budget cuts.
If your expenses are overtaking your revenue, and you can’t think of any recognizable areas where you can trim the fat, check out this big list of cost-cutting ideas.
How to Get Your Business Budget Back on Track
Most small business have likely experienced significant disruptions to their business-as-usual operations and are currently seeing an underperforming business throughout the duration of the COVID-19 crisis. With the coronavirus in full swing, you may have had to either modify or throw your business budget out the window in order to say afloat. However, to get your business budget back on track financially once coronavirus restrictions are lifted, you might need to make some adjustments.
Below are five important tips to help rebuild your business and your budget strategy after the coronavirus.
1. Assess your financial situation
According to Forbes, the first step in developing a rebuilding plan for a post-COVID-19 situation is to determine just how deeply your small business has been affected. There are different layers involved, starting with the hard numbers. If you recently haven’t updated your financial statements, such as profit and loss or cash flow statements, it would be helpful to do that now. You can then compare them to last year’s numbers to see how much your business may decreased.
In addition to adjusting hard numbers, this is also where you can do some financial forecasting as well to help estimate your business’s future financial health by looking at past financial date and reports. Forecasts can help you predict and estimate your business’ income, expenses, and other numbers. These numbers can also help you develop projections for profit and loss statements, balance sheets, and cash flow.
Aside from the hard numbers relating to sales, profits and cash flow, consider other ways in which your business has been affected. For example, if you’ve had to lay off some or all of your employees, you’ll need to factor that into your rebuilding plan. If you’ve reduced the size of your advertising and marketing budget, or if some of your customers have migrated toward competitors, then you will need to account for these changes as you identify financial resources to help you recover.
2. Reimagine your business plan and funding
Prior to COVID-19, your business model may have worked efficiently. However, coming out of it may mean you have to make some major changes. Forbes suggests a couple of factors to consider when going over your business plan and business model. First, you should reevaluate your business’ strengths and weaknesses. Then, you should look at parts that worked before that may not currently work and see how you can adjust or improve in order to remain competitive. Finally, do not forget to revisit your business goals to make sure they are realistic, given the current circumstances. For example, you may have set a target revenue goal for the year that should be scaled back to account for the impact that COVID-19 may have put on your Q2 sales. By analyzing how the overall industry as a whole has been affected by the coronavirus pandemic, it can help you focus on the trends to find new opportunities, while at the same time, it allows you to look at your competitors.
Furthermore, business owners should also take some time to create or rebuild a business emergency fund. The general rule of thumb is to have a cash reserve that covers about three to six months of expenses. According to Bob Prosen, a small-business adviser and coach, with loan limits up to $10 million and incentives to keep your employees on payroll, now might be the time to invest in your facilities or digital infrastructure. “If you haven’t become part of the digital world yet, this is an opportunity for you to do that to change your business model,” Prosen said. “You can do a lot with 10 million bucks.” While some loan programs are forgivable, you might have some debt after borrowing money during the crisis. Make sure you also prioritize paying off your debt as soon as possible and take into consideration the debt payments in your modified budget.
3. Create a contingent plan on future financial goals
The coronavirus has forced you to rethink your budget and what financial goals you should be working towards. According to Forbes, you may have several things you need or want to do in order to recover from COVID-19, but doing everything at once may not be practical. What can help is having a timeline to follow, which will prioritize what is most important first.
For instance, your immediate goal may be securing funding for your business. Once you have done that, you can set a timeline for rehiring employees, then restocking inventory. Finally, since businesses are starting to open up again with social distancing measures in place, your goal can be to reopen your business, if you have not already due to the pandemic.
Remember to track your progress as you take gradual steps toward recovery. This is mainly important if you’ve secured capital to fund your business, because you don’t want to waste time on activities that aren’t delivering a solid return on your investment. In the initial phases of COVID-19 recovery, you may want to check in weekly to see what is working and what is not. Later, you can review your business financials monthly as things begin to alleviate. Ultimately, your current budget should reflect your priorities and future financial goals after you made those changes to your budget due to the coronavirus.
4. Look for strong relationships
According to Usman Iftikhar, who is the 2019 AMP Tomorrow Fund grant recipient and the CEO of Catalysr, one of the best ways to build a stronger business post COVID-19 is by looking at your strongest relationships to find the most suitable partners. “The organizations and people who you want to partner with are those who you already know, trust, and have a relationship with because you understand them,” he says. “Just knowing what they do well, what they don’t do well – understanding that is very useful.”
To forge stronger relationships with customers, Inc. suggests to (1) create customer communication; (2) prioritize client issues and determine messaging; (3) talk to your customers now; (4) always follow-up; and (5) regroup and review. In order to make you and your business team stronger and your customers more committed to doing business with you in the years to come, you should improve relationships with your customers after lessons learned during this crisis, and the takeaways will help you tackle future challenges.
5. Rebuilding Timeline
Since there is the reality that another pandemic might occur again in the near future, it is reasonable to assume that an unpredictable crisis can come along to disrupt your small business at any time. Using what you have learned during the current pandemic can help you prepare for the next crisis and protect your business from future distresses.
As an example of preparation according to Forbes, your first priority might be building up liquid cash savings for your business, if you had little or nothing set aside before the COVID-19 outbreak began. You may choose to focus on paying back your debt and trimming non-essential spending to keep your budget in check, or you may need to find ways to help your staff work more efficiently to cut operating costs.
The coronavirus crisis may have taught you a thing or two about how significant it is to be able to adapt and keep your business fluid, so you can reasonably battle future disasters. One such example is the option to work from home. If your employees did not have the option to work remotely before, that is something you may want to include in your business model going forward. You should prepare for the worst-case scenario by having Plan B (and even a Plan C, D, E and F) to help improve your business’ survival rate during tough recessions so it can eventually thrive again.
All five methods above can help your business to get back on track financially and assist you with budgeting. It can also help you alter your budget plan for a post-coronavirus environment and better prepare you for potential future emergencies.
In addition, Investopedia recommends small business owners to seriously consider these key takeaways to better a business budget for the future.
• A business budget helps owners determine if they have enough money to fund operations, expand, and generate income.
• Without a budget, a company runs the risk of spending money it does not have, not spending enough to compete, or failing to build a solid emergency fund.
• To create a budget, check industry standards to determine the average costs of doing business and create a spreadsheet to estimate the amount of money needed to allocate toward your costs.
• Factor in some slack in your budget to cover unexpected costs and review areas where you could cut costs if times get tough.
• Review your budget every few months and shop around for new suppliers to save money on products or services for your business.
The ultimate goal to build the best budget and rebuild strategy after the COVID-19 pandemic is to make sure that enough money is available to keep the business up and running, to grow the business, to compete, and to ensure a solid emergency fund. Budgeting is an essential process that small business owners must consider to forecast and eventually match the current and future income to expenditures.
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