Budgets in the time of Coronavirus

From the Lionesses of Africa Operations Department

With everything changing daily, with suppliers going bust and customers canceling orders, how can we possibly budget? Is it not simply better to stick our heads in the sand and hope when we come up for air, the Sun is shining and that Spring has arrived? Does that actually help with your sleeping patterns? Sorry - no such luck!

In our previous articles, we discussed a few immediate and urgent solutions you should put in place, such as: 

1. putting someone a little harder than your kind and hardworking bookkeeper in charge of phoning your customers to remind them to pay your invoices, 

2. you, yourself signing off on all payments - remember this is more of a knowledge issue, rather than a lack of trust issue - you simply have to know and if it makes your staff think twice about ordering extra toilet paper (to pick a not very random panic buying article) then every little counts as far as your Cash Flow is concerned!

3. and of course the large WhiteBoard set up by your operations team showing when deliveries are to be expected and when payments for these are due. Remember the WhiteBoard is there so that your Sales Team can start selling before the goods arrive (don’t forget to remind them, - “Confirm Those Orders!”, when the goods can be delivered, and that a deposit goes a long way….) and also so that you and your Team can see clearly when that ’40 foot’ container is payable. Nothing concentrates the mind more than seeing those numbers everyday…

Now we bring these all together into one 13-week budget.

Why 13 weeks? 

This is the largest time-frame that can be considered to be small but relevant, will always cover an end of one quarter (this alone will keep your accountant, shareholders and bank happy(-ier)) and is small enough to allow at least some ability to ‘guesstimate’ the future. Seriously - no one knows what is going to happen in the next year, but with shipping times of 30-40 days from Wuhan (yes, we sadly all know where that is now), this allows us to be able to with some degree of accuracy work out a budget and more importantly what our Cash Flows are going to look like over the next 13 weeks.

One last thing. You will know your Sales Team and how much extra they add on. There are a number of attributes that makes a good saleswoman/man. Optimism is certainly one of them. Just think about it. Who in their right mind would want to pick up the phone for the 28th time, when the other 27 cold calls that day that have all been negative if they didn’t seriously believe that the 28th would be the Big One! That is why it takes a certain breed to be in Sales!

So optimism is great, but it is a double edged sword and when budgeting, if you are not careful, it tends to get in the way.

In tough times you have to be realistic: 

1. add in the confirmed orders that have deposits with a value of 100%;

2. take 85-90% of the value of confirmed orders;

3. take only 50% value for unconfirmed orders

4. 20% of the value that your sales teams believe will come.

Although you know your sales team better than anyone, it really is better to be safe rather than sorry. Even if you manufacture or import medical goods and you think the whole world will need your fabulous ISO standard medical gowns, Africa is sadly littered with dead small businesses. The kind who had been quietly manufacturing (for example) mosquito nets and employing people until a kind hearted charity in the Northern Hemisphere decided to make a gift of 1 million nets, manufactured on the cheap in China and flown in overnight, instantly killing the market and destroying the business. Currently the whole world is manufacturing medical equipment, hand sanitizers and soap, and there is no On/Off Button. At some point the world will get through this and then, guess where the excess is going to go? Based on past performance, there are no prizes for guessing that it will be Africa. So be careful, watch the news, tick off the countries as they come out of this, and be ready.

So that’s the variable costs and income done, now add in the fixed - the rent, lights, water, salaries, etc., and that’s your 13 weeks’ budget done. It’s not going to be perfect, so don’t worry about the last penny (you have far better things to worry about, believe me!). Make sure you send a copy to your accountant, shareholders and bank - it’s always good to keep those 3 groups on your side!

Then daily as money comes in, as the 20 or 40 foot containers are offloaded and paid for, cross them off the top off your list and add new invoices, new orders, new ‘when due’ containers to the bottom of your list, and you then have a perfect rolling 13 week Cash Flow plan. Best of all, when your bank in a few months asks you for your latest 13 week budget, you don’t have to start afresh. Simply reach into your draw for a large Pink Bow to tie it up with and send! 

Now, that does help with your sleeping patterns!

Stay safe.