Is Budgeting Still Relevant In This Time Of Uncertainty?

The coronavirus crisis has ravaged through economies across the globe at an unprecedented rate, bankrupting reputable firms whilst leaving others scrambling for cash to keep themselves afloat. Companies have borrowed astronomical levels of debt through capital markets as well as government backed loans despite corporate debt levels preceding the crisis to already be too high. UK government support involved provisioning of £58 billion through loans ranging from the Coronavirus Business Interruption Loan Scheme to Bounce Back Loans. The latter was targeted toward small and medium sized enterprises with a limit of up to £50,000 and has proven to be the most popular of the government loans-accounting for nearly 60% of the total by value-largely due to the light-touch checks made. Budgets have been thrown out of the window with variance analysis on static budget targets being rendered redundant.

The annual preparation of budgets is often a routine procedure for many entities.

Few, if any, companies could have foreseen a pandemic, lockdowns and vacillating government guidance being an ever-present aspect of their operations. People have argued even before the pandemic for the traditional budgeting process to be overhauled. Deemed to be bureaucratic, time-consuming and deviating the company from its central purpose, its usefulness has been called into question especially when actual circumstances are substantially different to those under which the budget was prepared. Budgets have also been vulnerable to manipulation with managers able to create budgetary slack or take decisions which may enable the firm to remain within its budget in the short term but dent its long-term efficiency. Despite developments such as zero and activity-based budgeting proving to be more desirable for organisational control, they can create uncertainty due to regularly updated targets.

This begs the question, is budgeting and planning still worth the cost and time involved?

Unsuccessful business plans cannot solely be attributed to the pandemic. Many firms have been exposed for their lack of appropriate financial planning or poorly devised contingency procedures when handling the adverse impact of this crisis. Supply chain breakdowns, lack of diversification and insufficient insurance coverage have been concurrent trends experienced by businesses throughout this year. Guidance and consultancy received from professional accountants during such a period can prove to be invaluable and serve as the pivotal difference between survival and insolvency.

Businesses will inevitably undergo deleveraging plans to restructure their capital base by seeking equity or other sources of funds to service or reduce debt and avoid breaching covenants agreed with lenders and creditors. Further disruption to business activity will occur and sound consultancy services can mitigate the negative effect of these, ensuring operations flow smoothly in the process.

At Cheylesmore Accountants, we’re relentlessly committed to supporting our clients and wider business community through financial services including bookkeeping, budgeting, advisory and tax minimisation strategies. If you’re looking for a team to bolster your firm and enhance its value generating ability, feel free to get in touch through the contact form or set up a discovery call by simply clicking on the Contact Us tab at the top of the page.