BUDGETING IN TIMES OF UNCERTAINTY
February marks the end of the financial year for most businesses in South Africa. During this period, you will be reflecting on your businesses’ prior year performance and planning for the new financial year ahead. There is no debate on whether a business needs to have a budget or not. A budget is an integral part of your business planning and financial control, and it forms a basis for all the business’s success. Without it, you will lose control of cash flow, profits and business commitments. Without it, you will not know what the business can and cannot afford, and you won’t be able to take advantage of bulk buying opportunities or have plans for investing or lowering debt. A budget is a compass that shows how far the business is from reaching its goals. Some businesses owners also even use their budgets to set Key Performance Indicators and incentives for staff.
Budgeting itself is very tricky because there is no crystal ball to show you what lies ahead; you have to rely on experience and history. Budgeting with all the uncertainty in the current environment due to the pandemic is even trickier. It is not business as usual; many of the predictor variables have been thrown out of the window. Things like market stability, staff requirements, availability of suppliers or services providers, and the business’s physical location are all no longer as easy to predict. So, when preparing a budget for the coming financial year, new considerations will have to be considered
Assess the impact of the pandemic as it relates to your business
The past year has given a rough idea of the pandemic’s effect on your business and the industry you operate in. This is valuable insight that needs to be taken into account when planning for the next twelve months. Use what you already know to evaluate the impact of Covid-19 on your business, taking the following into account
- -Possible changes to Covid-19 regulations (e.g. lockdown, tighter restrictions in your industry, social distancing, health regulations, etc.)
- -Staff working arrangement and the management thereof
- -Availability of your business’s suppliers or service providers
- -Ability to raise funding should a need arise
Create multiple budgets with different scenarios
With so many potential scenarios, you will need to consider the best-and worst-case scenarios. Planning for these scenarios will help you have more control and avoid working with an irrelevant budget. Multiple budgets will also help prevent nasty surprises ahead because when unforeseen circumstances arise, you will be prepared and ready to tackle them head-on.