Budgeting in Times of Uncertainties: A How-To Guide for Small Businesses

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Budgeting in Times of Uncertainties: A How-To Guide for Small Businesses

The world's been a bit unpredictable for the last few months, and that's perhaps an understatement. COVID-19's emergence, decline, and possible resurgence are causing significant ambiguity for businesses big and small.

Should we reopen? Should we close again? How much inventory should we stock? Is now the time to hire? Should we try to get out of our current lease? How should we budget for the future?

If questions like these are keeping you awake at night, you're not alone. It's a crazy and confusing world right now filled with unknowns. Fortunately, you can take steps to set yourself up for success in the future, regardless of what happens next—and one primary step is budgeting.

Budgeting is hard, especially in times of uncertainty. It's hard to know what's around the corner, and historical data is basically useless in the "new normal". However, budgeting is still critical to keeping your small business on track.

Follows our tips and best practices below to create a reliable budget that can withstand the test of this uncharted business environment.

Create Multiple Budgets

With so many future potential scenarios, you're going to need a backup plan—and maybe a backup-backup plan.

Consider creating budgets for plans A, B, and C. If things go great, what do you anticipate your earnings and expenses will be? How about if things are just okay? And what about if nothing goes your way?

Planning for these scenarios in advance will help you adapt on the fly rather than having to reconvene before making important financial decisions. Some opportunities won't wait—multiple budgets on hand will help you immediately know what you can (and can't) afford, given your current circumstances.

Plus, multiple budgets will protect you from any major surprises. When (not if) setbacks occur, you'll be prepped and ready to tackle them head-on. Lack of a backup plan will force you to slow down and lose momentum while various strategies will empower you to hit the ground running and roll with the punches.

Revisit Your Budget Regularly

Don't spend your valuable time creating a budget just to stuff it deep in your Google Drive or in the file cabinet. Keep your budget close on hand so you can revisit it regularly.

Yes, a budget is handy as an end-of-the-month tool to assess whether you hit your goals. But it's so much more. Frequently review your actuals and your budget to see if you're on track. If you are, then congratulations—learn what's working and keep forging ahead. If you're not, then take a step back—you may need to cut your expenses, forgo investments, or explore small business loans.

You don't need to wait until the end of the month to update your budget. If circumstances change, make on-the-fly adjustments. Gain a valuable new client? Budget how you're going to invest that extra cash flow. Lose a vital employee? Estimate how that might impact your revenue and what costs will be necessary to replace them.

Increase Your Miscellaneous Budget

A miscellaneous category is an essential part of any budget. For your personal finances, a miscellaneous budget helps you cover unseen expenses: furnace replacement, vehicle repairs, health complications, etc. The same is true for your business—you just can't predict all your possible costs.

Now, more than ever, you need to expand your miscellaneous budget. It's impossible to know what's around the corner, and you can't rely on a potential second round of government funding to bail you out. Set aside extra money each month to cover unexpected costs:

  • Costly turnover
  • Wasted inventory
  • Business closures
  • Additional sanitary products (hand sanitizer, masks, Lysol, etc.)
  • Software licenses
  • Trip cancellation
  • And more

If there's a chance you may need to spend money on something, budget for it. While it's nice to dial in your budgets to be as accurate as possible, now's a good time to be liberal with your estimates. Plan to spend more—the worst-case scenario is you'll end the month with a little extra cash.

Find a Small Business Loan

If you're crunching the numbers and they're just not adding up to meet your budget, you may need to find a small business loan. Whether you need to boost your working capital or free up some cash flow, a loan can you usually do the trick.

Consider getting a business line of credit. A line of credit is a safety net that's there when you need it, but you have no obligation to use it. If disaster strikes, you can tap into your credit line to bail yourself out. And if your business sails smoothly through these unknown times, you can let your line of credit sit idly on the sidelines.

Plus, if you do borrow from your line of credit, you're only required to pay interest on the portion you used — not the entirety of the loan.

Another great option is an SBA 7(a) loan. If you need to buy a heftier investment (equipment, real estate, inventory) or tackle an emergency, SBA 7(a) loans offer generous loan amounts, low-interest rates, and generous repayment terms.

Don't be afraid to take out a small business loan to support your budget during these difficult times. A little cash now can make a big difference in the long run.

Make It Happen

It may be tempting to let things settle down first, but don't wait to adjust your budgets. Yes, they made need to be changed again next week or tomorrow, but it's mission-critical you stay on top of your finances—and a budget is the best way to make that happen.

Whip out your calculator, financials, and projections and get to work. Your business's success and survival won't be an accident—it'll be the result of diligent, intentional planning.

This article was contributed by Funding Circle.