The pandemic has made it almost impossible for business owners to make any predictions about revenue or recovery.
Budgets that businesses had to start 2020 became obsolete with nearly 90% of businesses reporting COVID-19 affected their projects or budgets, according to Dresner Advisory Services LLC.
“Due to COVID-19, the majority of small businesses had to reevaluate their 2020 budgets,” says Erica Chase-Gregory, director of the Small Business Development Center at Farmingdale State College, which offers free business consulting that includes all aspects of financial and business planning. “With so many unknowns, it’s so difficult to have just one plan that will be effective for success.”
Budgeting during a pandemic requires companies to become more nimble and flexible, she says.
Howard Dresner, chief research officer at Nashua, New Hampshire-based Dresner Advisory Services LLC, a research and advisory firm, suggests business owners use rolling forecasts rather than static budgets, given the economy's fluid nature.
“It’s a method of continuous planning that allows management to look forward over a specific time frame,” he says, adding it’s typically over 12 to 18 months.
But unlike a traditional budget that sets a financial plan for the entire fiscal year, rolling forecasts may be revised monthly or quarterly depending on market fluctuations, says Dresner.
He encourages companies to invest in “business intelligence and analytics as a means of understanding the rapidly changing business landscape.”
Companies should develop multiple business scenarios and budgets to address various conditions, says Dresner.
To be sure, many CFOs are using severe downside scenarios to inform their decisions right now, according to Gartner Inc.
“During times of extreme uncertainty when the business is focused on cash, liquidity, payments and meeting debt covenant, companies are often forced to use the worst case for financial planning,” says Alexander Bant, practice vice president at Arlington, Virginia-based Gartner Finance.
This allows the company to remain financially stable, he says.
However, as companies enter the reopening phase, they “will need scenarios that reflect the best forecast they have of their revenues,” says Bant, noting “this will change week to week” but will narrow over time.
It’s best not to go into panic mode and make sweeping across the board cuts or kill all long-term investment plans.
“We see the best companies using this opportunity to refocus their capital deployment" toward fewer, more focused growth investments, says Bant.
Although these are challenging times, Adam Schwam, president of Farmingdale-based Sandwire Corp., a managed IT services company, says he’s not looking to make cuts and has kept all 15 employees on the job.
Admittedly, budgeting is difficult in these times, he says.
“I did my budget in December and it was out the door the beginning of April,” says Schwam. “Right now it’s a moving target.”
He got a Paycheck Protection Program loan and says the firm hasn’t stopped helping clients because the demand for services is very high despite the fact that current conditions have seen some companies reduce their IT needs and others are slower to pay.
He’s looking at new ways to serve clients, including helping them to work more efficiently from their homes.
“We’ve been through Sept. 11, the 2008 recession and hurricanes Sandy and Irene and we helped our clients through those times and we will make it through this as well,” says Schwam. “I think long-term and know that businesses will always need their technology in order to survive.”
Still, recovery could take awhile.
“We know the revenue line’s going to be lower,” says John Mullin, a Garden City-based partner at B2B CFO, a chief financial officer advisory consulting firm. “We just don’t know how much lower and we’re not going to know that for awhile.”
That’s part of the reason he’s tried to get clients to focus on the expense side of the budget, over which they have more control.
Specifically, looking at where they can reduce expenses “without inhibiting their ability to grow the revenue when the business comes back,” he says.
Mullin believes flexibility is key and even in good times advises clients to have a flexible budget based on different levels of activity (high, medium and low).
Many companies will undoubtedly need to go back to basics and carefully analyze revenue streams and overall business models.
“It’s going to be a fluid process for them,” says Chase-Gregory.
More than half of CEOs (51%) are preparing for up to 30% decline in revenue this year due to COVID-19, according to a Gartner survey.
Source: Gartner Inc., nwsdy.li/gartner
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