Worst Case Scenario: What Happens When Your Budgeting Goes Wrong?

Think of your budget as a flight plan for your company. A properly completed budget will go a long way towards ensuring a smooth landing. But if it’s plagued by errors, miscalculations or a lack of foresight, that budget could result in your organization going off-course or worse, crashing and burning. Here’s how you can deal with any unexpected turbulence involving your business’ budget and how to plan to avoid those circumstances in the future.

Bouncing Back

What do you do if red flags show up on your company’s radar? While you figure out how your company’s going to survive these troubling economic times, consider how altering your practices and budget might help you get out of the red.

1. Prioritize what’s needed. Look at your procurement history; if some products have been moving faster than others, prioritize these and cut out less popular offerings. Delay any plans for expansion until your company and the market has achieved some stability. Any costs not related to improving production efficiency and sales should be reduced as soon as possible. If necessary, consider whether the time is right for a minor price hike in your inventory to help offset other costs.
2. Monitor your budgetary progress frequently. If your company only provides monthly updates, a mistake made on March 3 won’t be detected until March 31. This could be devastating in a world where financial activity is volatile. Establish more regular updates to stay on top of any budgetary fluctuations. Better still, if all of your financial reporting is paperless, take advantage of software features that provide instantaneous, big-picture results so that you can make faster and more accurate decisions.
3. Weigh benefits and costs. Arbitrarily slashing costs from your budget might buy you some time to get through the rough patches, but could compromise your company’s ability to compete once the tide turns. Instead of finding short-term solutions, consider the cost of upgrades to your machinery or even your financial software. Don’t let the price tag scare you. While this might require an initial investment, it’s worth it if these items save you significant time and labor by the time the budget period ends.
4. Fix the failures. There’s a very good chance that a few areas in your company can account for most of the shortfalls. Examine your budget to identify spots where the gaps between projected and actuals are the widest. If expenses are responsible for the red ink, tell the staff to cut out all non-essential future purchases. If sales are lagging, look at ways to improve their performance, such as upgrading their skills or researching new opportunities. Above all, ask your employees on the front lines for their thoughts, since they’re much closer to the action. Then fix the budget to address those concerns.

Planning For The Future

There’s no easy way to accurately predict what will affect your company in the future. You can, however, include safeguards in your budget to mitigate the effects of any potential internal upheavals or external economic changes. Here are a number of practices used by experienced business owners and managers who’ve been through thick and thin when it comes to planning budgets.

1. Give yourself room. Make your budget flexible enough to shift money around so that any situations that do arise can be prioritized without impairing the productivity of other components of your business. If a spike in sales means you need to hire more staff, ensure your budget can make such allowances. In any economic emergencies, budgetary padding can help reduce the need to sacrifice resources to stay on target.
2. Be dynamic. Consider more than just your usual expenses when creating a plan for the next quarter. Allow for space in your budget for any new tools, equipment and technology that can make your company’s workflow go a lot faster. Be ready to consider alternative procurement strategies, such as ordering products in bulk if they begin to sell well.
3. Keep an eye on trends. There’s no such thing as a smooth road to prosperity. Returning to our flight plan metaphor, there will always be some unexpected turbulence. Sales cycles are cyclical: summers can be slow and winters can be wild. Take those changes into account when planning your budget and don’t worry when your sales fluctuate. Examine lag times between procurement and sales of various products in your inventory, as this might indicate possible changes in consumer taste and other market trends.
4. Automate your budget. When you integrate the entire company’s activities— from procurement to sales—into one system, any updates can be viewed instantly. This makes it easy to compare them with projected figures moving forward. If you’re in charge of completing all purchase orders, you can quickly find out whether buying certain items can keep you in line with budget projections. Take advantage of the features of software like ours to increase your procurement options and find suppliers willing to work with your budget constraints.

Planning a budget to account for the intangibles and to withstand the unexpected is crucial if you want your company to absorb the impact of threats and take advantage of new opportunities. If done right, consider your budget the ideal boarding pass to a journey of financial reward.