How does your breakeven points affect your budget?

Roadmap to Recovery: Breakevens and Budgets

At this point in your journey using the roadmap to recovery, your business has a 13-week cashflow forecast and a breakeven analysis. The next step is readjusting your budget according to what is now feasible for your business in the post-pandemic economy. Your budget will help keep your business on track to achieving your goals in the coming months.

Why Budgeting?

As the world deals with the economic fallout of the COVID-19 pandemic, businesses need to take control of their finances. With better financial visibility comes better financial health. Budgeting helps companies strategize how to allocate their cashflow, which protects businesses from being blindsided with unknowns. Not only will it help your company strategize how to use your cash, you will also be able to set new, attainable post-pandemic goals for your business while giving yourself the means to achieve them.

A budget helps business owners know what to expect as they move forward. Cash is one of a company’s best resources and it should be used correctly. Keeping track of changes to your business’ post-pandemic income and expenses will lend your company the financial visibility you need to take control of your finances and make a strong comeback.

For Small Businesses

One of the biggest reasons small businesses fail is due to money mismanagement. Many small business owners do not set a budget or do not stick to a budget. Budgeting is an important step on the path to financial health and visibility for all businesses, but it is especially important when faced with economic uncertainty.

Businesses should set a budget to both track their spending and set new post-pandemic goals. You will be able to set up cushion margins for emergency spending, ensure your vital expenses are getting paid, and keeping your company open, without putting your finances at risk. Budgeting helps your business manage money responsibly. Companies with financial health and visibility have a better chance of surviving an uncertain landscape.

Building a Budget

Just as each business is unique, so is each budget. Establish which expenses are most important to the operation of your company and ensure that those expenses and functions have the right funding. However, every business will need to account for common considerations like cash inflows and outflows, fixed payments and production costs. Your budget will also need to account for things like payroll, employee benefits, sales commissions if applicable, and other expenses intrinsic to your business.

As you work on building your budget, begin with the end in mind. Start by setting goals regarding what your company would like to achieve in the coming months and set the rest of your finances with that goal at the forefront. In a post-pandemic economy, your goals are probably going to look different from what they were when you set your business plan. For example, if your goal is to maintain your employee count through the end of the year, start by allocating funding to payroll costs and disburse the rest of your budgeted cash accordingly.

Common Mistakes

A couple of the biggest budgeting mistakes we see businesses make include incorrectly preparing a budget or neglecting a budget altogether.

To avoid these common mistakes, ensure the right person is creating your company’s budget. Your company’s accounting staff, controller and Chief Financial Officer (CFO) should all have a hand in creating or readjusting the budget. If your company does not have an accounting department, controller or CFO, consider hiring a third-party accountant to do the work. Using a professional accountant lowers the risk of budgeting errors affecting your company’s finances.

After your budget has been adjusted to reflect your company’s finances, each department in your company should make a commitment to stick to the it to ensure your business’ long-term financial success. Commit to sticking to the budget from day one.

Budgeting for Your Roadmap

As you follow along with the Roadmap to Recovery series, you are building tools to give your company the financial visibility you need to see success in the post-pandemic economy. Your readjusted finances should fit seamlessly with your breakeven analysis and 13-week cashflow forecast to create a comprehensive plan for your company’s future.

Readjusting your company’s pre-pandemic budget is an important step on your company’s roadmap to recovery. Ensure your business is spending money on expenses you can afford, correctly allocating any outside funding you have received and avoiding costly mistakes. Using your breakeven analysis, cashflow forecast and new budget, you can set your business on the path to success.

See the full Roadmap to Recovery webinar series

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