DO YOU HAVE A BUDGET?

Whether personal or business, we all can use a budget.  Only the Federal government can continue to spend more than it takes in as revenues.  Local governments cannot, and nor should we. If it is temporary, and you can manage the shortfall, that is OK.  Managing a shortfall can include loans or withdrawals from savings accounts or stock portfolios.  In theory you need to have a plan to repay it. And that requires a budget. These are unprecedented times, however the economic rules remain the same. Revenues or cash income over time must equal or exceed cash expenses.

How to create a budget?

You should start with expenses. Based on your history, what are the absolute minimum expenses that cannot stop.  In terms of your personal budget, food and shelter come to mind. Transportation costs are next. Then you can add your minimum debt obligations and anything else that cannot be avoided.  There may be some very difficult decisions, however, ignoring those decisions hurts you in the long run. In your business, look at your fixed expenses. Fixed expenses might include rent, utilities, payroll, etc. This is the start to your budget. It is the fixed amount that must somehow be covered.

Whenever a business came to our bank for funding, we always said that the expenses were the easiest to predict.  The revenues can be more of a challenge.

Next look at your income or revenues. In your personal budget, list all of your regular income. If your income is primarily commission based, that may be more difficult to predict accurately during a pandemic. But you need to start somewhere. Do you have a surplus or a shortfall when you match the income to the expenses?

The business needs the same analysis. The business may also impact cash receipts if you provide open credit, so be sure to consider that.  Just another wrinkle in the cash projection.

Now try to work up different scenarios.  What happens if you lose your job, even temporarily? This is one reason why financial managers strongly encourage setting aside savings for unexpected emergencies.  For the company, you may not be able to replace customers so easily. It will take time to recover.

If you are in a deficit spending position, you need to make changes. If you feel there is nothing that can be done, you need to think outside the box. Negotiate with creditors on the minimum debt obligations, or figure out a way to (legally) increase revenues.

It may be possible to take money from your savings, lines of credit or credit cards but if you cannot fix the deficit spending, ultimately you will end up in a deeper hole.

Although there are some philanthropic and government “safety nets,” you cannot rely on them to save you in the long term.

If you don't have a budget, make one and try to stick to it!