Crucial times require a strong action mode. It is true for an individual’s personal life and a company’s business operations as well. Challenging business circumstances such as recession, additional competition, and restrictive regulations can arrive at any time.
The biggest example of tough times is the current coronavirus pandemic, which changed the dynamics of businesses across the world. The real growth of a company is seen in how it reacts to such tough times, what strategic decisions it takes to sail through them, and what lessons it learns for the future dealing with such trying times.
Below we discuss how a budget can be planned in such crucial times:
1. Re-evaluate your goals
It is the critical exercise before moving onto any other step. Companies must understand their situation before the onset of the crisis and compare it with the situation after the influence of the crisis. They must develop a strong fact base of the change in trends and outcomes for the company and the industry as a whole.
These data and information can be assessed to get answers to questions such as, What has changed? What assumptions do not hold in the challenging times? How sensitive are our operations to the uncertainties of the market? Answers to these questions will enable the finance team and senior management to rethink the goals and make tweaks to budget to suit these difficult times.
2. Make necessary cost reductions
With the study of the current situation of the company, the finance team will get an idea of the profit centers and cost centers of the company. They can make cost-cutting in the not-so critical functions or departments, contributing to higher expenses for the company.
Making a consistent cut in every function or every department is not a practical decision since some operations may be required to work more and better in the tough times to bring the company back to normalcy. For example, in the coronavirus times, reducing the budget on IT and marketing is not a viable option; however, expenses on administrative activities can be reduced.
3. Consider multiple scenarios for analysis
The finance team must focus on altering different assumptions to develop different scenarios for in-depth analysis and to explore the outcomes. As a possible impact of trying times, companies can develop optimistic, pessimistic, most likely, and current-trail budgeting scenarios.
These scenarios must be assessed to find the outcomes of the plans, the time required to achieve these outcomes, and the impact on other functions. Each of these scenarios will have related financial forecasts, which can be tested for comparison purposes.
4. Identify the best strategy and implement
Based on the stress-testing of multiple scenarios, companies can decide on the most practical solution and develop a detailed financial plan for its execution. The selected strategy must mainly focus on responding to the challenges at that time and bring back the operations to normal times as fast as possible.
The implementation and performance tracking of these priority strategies must be a quick-shot process to minimize any impact of the change in the times.
5. Find the new normal for your business
Overall, the essential step for any business is to come out of the critical times as a survivor and accept the new environment, new behavior of customers, and changes in business relationships. The tough times will create a new normal for businesses, and the companies will have to accept and adapt to it to endure the tough times and plan for advancements in the future.
Budgeting is a critical task that, if managed well, can result in more control of finances for businesses in these uncertain times. The tough times last for a temporary period, and companies tend to return to normalcy in some time. Therefore, the most important tip is to calm your nerves, employ promising business strategies to survive these challenging times, and be better prepared for future ups and downs.
NR Doshi & Partners, a top audit firm in Dubai, manages the budgeting exercise for businesses from any industry sector. Being an accounting and bookkeeping service provider, our team is adept in preparing the budgets for small and large firms.
We have the knowledge and the experience of dealing with the changes in budgets due to challenging times of businesses. We provide prompt, accurate, and quality advisory services to businesses to plan their budgets in response to different business situations.
Anxious about budget planning? Don’t be! Call us for any help!