Q2 Review: How’s Your Budget Holding Up?
Do you remember the pain of forecasting and budgeting for 2020? Did your budget fly completely out the window mid-March? Budgeting is a best practice for every business and a necessity for those who want to be prepared for the new year. But you can’t account for everything. And when hit with things that we couldn’t possibly predict (like a global pandemic), you have to be able to adapt.
So here we are, halfway through the year. It’s time for a financial health check-up. At the end of Q2, how’s your 2020 budget tracking?
Let’s dig into it together.
Didn’t do any 2020 budgeting? Get a leg up on calculating how much it costs to employ your workforce in our latest guide, The True Cost of Employment.
Step 1: Crunch the numbers
Conducting a thorough review of the year so far - and how it measures up to your plans - is the only way to know how your spending stacks up with your projections. Especially this year, it probably won’t be perfect. But this is your baseline, and you can adjust from here. Compare what you’ve spent, in detail, to what you originally budgeted. Look at both the overall categories (for example, what you spent employing your workforce) and the individual costs (like how much you spent on shipping).
Keep in mind any seasonality in your business. If most of your sales come during the holiday season, and you have to scale up your workforce to meet higher demand, these things should be accounted for in your budget. Likewise, if the start of the year is your busy season, you may be well ahead. Take that into account as you compare your accurate numbers to what you originally projected.
Step 2: Take 2020’s surprises into account
This year, almost nothing has happened as we planned it. COVID-19 has shaken the U.S. economy to its core. So for most businesses, the “crunch the numbers” step is going to be daunting - you may have brought in a lot less revenue than planned because you had to close doors. Or you may be a company that, like Papa Johns, had one of the best periods in company history due to increased demands during shelter-in-place.
So take a deep breath. If you had to take out a PPP loan to make it through this quarter or lay off staff, you’re not alone. Your business may have had higher expenses switching front-of-house staff to delivery or eaten into profits by keeping expenses steady while demand dropped. You’re taking the right step forward by taking a critical look at the numbers. And there are always options to cut costs without sacrificing momentum.
Step 3: Evaluate your budget’s health
Next, ask a few key, simple questions:
- How does my spending compare to my assumptions?
- What stands out - where have we spent more than planned?
- How has COVID-19 impacted my business?
- Where are we saving?
And evaluate your answers. What caused your changes in spending? If your priorities have shifted, it may make sense for your spend to as well. But if your expenditures are out of line with what you expect and you can’t explain why, you need to take a deeper look. When it comes to the pandemic, some deviations from your budget are inevitable. Evaluate the impact those are having and what’s truly best for your business, your customers, and your staff during this time.
Business needs can change, and unexpected hurdles are always possible - we all got a massive lesson in unexpected challenges this year. Just make sure to identify the root cause of your altered spending and make accommodations to be prepared for such scenarios in the future.
Step 4: Adapt and plan
This is a great time to look for opportunities to save and invest where necessary. You may have also learned important lessons about how your business if you were forced to change some part of your business model during shelter-in-place. Take advantage of those lessons and leverage your findings to help your business run more smoothly and adapt more quickly in the future.
For example, customer loyalty and feedback mean a lot (especially in times like these). If you cut spending on shipping, but you’re hearing customer complaints about the delivery time, dig into how those customers’ repeat purchase rates are affected. It may be worthwhile for your business to spend more on shipping to retain more customers. Use data to make decisions like these and level up your business for the future.
Similarly, look for places where costs can be cut. For many companies, labor is the biggest part of their budget. And it can often feel like labor costs don’t have a lot of wiggle room. That isn’t true. The cost of employing - and recruiting - a workforce can be astronomical, but there are easy ways to save on HR costs using an affordable, full-scope staffing solution like Bluecrew.
After you’ve fully analyzed your budget results, you should have a good understanding of your business’ financial health. Just remember - a budget is an estimate. It doesn’t have to be perfect and it often won’t be. But it is important to regularly check in to evaluate the health of your company’s revenue and spending to ensure you’re in good shape for the future.
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