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Tuesday, April 13, 2021

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Budget Planning in Uncertain Times

by Martin Kirshner, CPA, MSA, Gray, Gray & Gray, LLP


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More important and demanding now than ever

While we can never be certain what the future holds, the grip of the global pandemic has made prediction an even more unreliable gamble. But one thing is sure: failing to develop a strategic budgeting plan for 2021 is a quick route to failure for your business.

Typically, companies budgeting for next year can set benchmarks for spending by referring to their financial performance from the year that is coming to an end. This year has been anything but typical. In light of the uncertainty surrounding the health and economic situation, it is more important than ever to engage in thoughtful and intentional business and budget planning.


Cash Flow Management Is Key

Business owners who have an annual business plan to follow are better able to navigate through tough times, respond quickly to market changes, and swiftly take advantage of opportunities that arise in the midst of any crisis. While everyone around you is losing their head, keeping yours — in the form of intelligent budgeting — can help you move beyond “I’m worried” to “We’ve got this.”

The core of a budget plan is a good cash flow forecast. We spend time at the end of every year helping clients create solid revenue and cash flow forecasts for the following fiscal year. In 2020 many of those plans required adjustment, as calculated sales and gross profit margins were unsustainable due to the pandemic. In some cases, we “gamed out” multiple budget scenarios based on predicted revenue reductions at different levels to help prepare for what the remainder of the year might bring.

More attention was focused on cash flow management, including conservation of cash, collecting receivables, delaying payables and renegotiating leases. This included calculating cash flow with and without Paycheck Protection Program or Emergency Economic Injury Disaster Loans. For just about every client, we were able to show that the business would survive if they followed their strategic plan. That provided the reassurance necessary to look ahead with confidence.


Stages of a Crisis

When the economic downturn occurred in March, the first reaction for many business owners was fear. That’s a natural response to the unknown. But this was not the first crisis that has challenged businesses across the country, and many of our clients quickly moved beyond alarm and anxiety into the active response stage.

As we entered the fall, the “new normal” had become simply “normal.” For example, some staff members had shifted to remote work, virtual interactions with customers were everyday occurrences, and contactless billing and payment systems had been put in place.

The next stage we will enter will be business reinvention. Delivery methods, service protocols, customer communications, and sales and marketing are all going to be different from now on. This will require investment in new technology, enhanced staff training, and a much higher engagement level with customers, whose trust must be earned with every interaction.

For fuel oil and propane dealers, the focus must be shifted to service, accelerating a trend that has been evident for several years. As energy efficiency improves and pressure continues to mount against fossil fuels, the service department is going to be the foundation for future growth, evolving into a profit center that can support the overhead for the company. This will also have to be accounted for in budget planning.


Manage Opportunities

Strategic budgeting gives you more control over your business. Instead of rushing from crisis to crisis on a daily basis, you’ll know in advance that you have the financial stability to adapt and adjust. This gives you the chance to seek additional opportunities for growth and enhanced profitability. What assets can you leverage to grow revenues? How can diversification create a broader customer base? What is the best way for you to spend your time?

These are the types of changes and opportunities you can identify when you take a strategic approach to planning and budgeting. By tracking metrics from your business plan, you can quantify performance in key parts of your operation and pinpoint areas which are failing, as well as those where opportunities for increased revenues exist.

Don’t Forget to Look Ahead

With the uncertainty of the COVID-19 crisis still lingering, for 2021, companies are not going to take an aggressive approach on their budgets. However, companies also won’t be as conservative as they were when they initially revised their budgets in 2020. Changes required to adapt operations to a more complex market will require investment. You should carefully track whether or not you are meeting your budget numbers on a weekly or monthly basis — don’t wait for a quarterly report.

Intentional and thoughtful planning is especially critical if you intend to transition or sell your company in the future. A solid plan, carefully crafted and executed, can help improve the multiple you can command when you finally decide to exit the business.

The business planning and budgeting process is a critical part of managing a company out of the crisis we are facing. Planning allows you to clear the clutter and focus on those actions that really matter.

Martin Kirshner, CPA, MSA is Director of the Energy Practice Group at Gray, Gray & Gray, certified public accountants and business advisors. He can be reached at 781-407-0300 or mkirshner@gggcpas.com.


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