4 Strategies to Help Re-Align Your Budget for the Second Half of the Year
The year is already halfway finished, making now the perfect time for business owners to assess their progress with strategic and financial goals. While qualitative analysis can be helpful, performing quantitative analysis to look at elements such as business cash flow is crucial. This means you'll need to track your budget to determine whether your company is on target to meet its goals.
If your business cash-flow analysis reveals you've fallen off track with your budget, there's no need to panic. Instead, get to work on new budgeting strategies for the rest of the year. Here's how.
1. Determine which costs to reduce or cut.
There is no denying what a budget says. It clearly shows where the money has gone. Use the hard numbers in front of you as a starting point for making some critical decisions on what to cut or eliminate in your company's spending.
That may mean taking a hard line on what the company can do without. For example, a cost-reduction process may mean you'll need to cancel regular meal outings on the company dime. You may need to downsize other small perks until you see improvement in the company's bottom line during your next budget review period. Or, you may see how paper processes are driving up expenses. You could switch to digital versions of those processes and eliminate those costs.
If you see serious issues in your mid-year assessment, you may want to consider doing monthly fiscal check-ups until everything gets back on track.
If these reductions will have a direct effect on specific departments or teams, make that clear to them as soon as possible. Explain to them the nature of the cuts, what kind of changes they can expect and how long you plan to keep these measures in place. This is also an opportunity to suggest what a team can do to keep a careful watch to end wasteful spending, including using an expense-tracking app.
2. Identify where revenue has fallen off.
Your financial statements also reveal ups and downs in company revenue. These fluctuations are common for any business, especially those that have any ties to seasonal sales or trends. However, even within the context of fluctuations, it's time to address things on a larger scale when you see revenue is in any period of decline halfway through the year.
Once you've identified declines in revenue, it's time to develop and launch strategies that can improve these figures. Depending on the type of business you run, consider special promotions, including discounts or coupons tied to particular events. For example, these could include back-to-school specials, promoting seasonal products or tying marketing campaigns to new fiscal years where companies might be looking to invest in new equipment and software.
This is especially relevant in retail, where the next six months include the holiday season and the potential for significant growth. Often,consumers begin their holiday shopping in October, so you can start putting together your holiday strategy. This could include gift guides and campaigns to drive higher sales to close out the year strong.
3. Assess why the company got off track.
First, conduct a business cash-flow analysis to determine what led to the gap between budget and reality. Once you understand what caused those discrepancies, then you can identify what changes to make in spending or operational processes.
Be prepared to face more than one reason that led to these discrepancies. If expenses go unmanaged, cash flow dwindles and revenues decline, then it becomes a recipe for missed financial targets. However, actions that led to missed targets are often small and numerous, not one-off, large-scale mistakes. For example, maybe late payments from clients dragged down cash flow. Perhaps many small instances of overspending are catching up to you. Something unexpected may have occurred, such as office repair costs that drained the budget. Maybe an employee left, leading to extra expenditures as you hired a replacement.
Take the time to explore each reason you're not on budget. You may discover operational inefficiency, lack of training among employees or a need to overhaul best practices to improve workflow. There may also be external reasons for why the company got off track. Economic shifts, changing expectations from clients, or regulatory changes that affect how your industry operates are all factors. Each situation is unique and requires changes to mitigate financial losses over time.
4. Increase the frequency of budget assessments.
Rather than just conducting a mid-year review, consider shifting to a quarterly review instead. This can alert you to potential problems more quickly. If you see serious issues in your mid-year assessment, you may want to consider doing monthly fiscal check-ups until everything gets back on track.
Changing budgeting strategies can help you catch missteps before they adversely impact your bottom line. This helps boost cash flow and revenue at a faster rate because you'd be making changes more often. Also, increasing the number of budget assessments can show you if your changes are actually working or if there needs to be further adjustments. Some changes may take time to come into full effect, which requires patience. Others may produce results immediately. Differentiate between the two. Maybe you want to overhaul company practices on a larger scale. Or, maybe you just want to cut out a few extraneous expenses each month. Adjust your analysis and expectations from there.
This will require more time and effort on your part to establish quarterly budget goals. However, these new expectations may be easier to hit because you can adjust them to reflect seasonal changes and predict or react to new trends. As a result, you'll be able to achieve a better alignment with revenue and expense flow for the year. Quarterly assessments may also give clearer insights for future goals or strategic changes. They may take weeks or many months to see in your bottom line. But, the best way to help ensure a strong financial future for your business is to track your budget and your revenue as they ebb and flow.