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Budget planning for businesses Budget planning for businesses
by Joseph Gatt
2020-08-06 09:04:54
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Random tips for budget planning for companies and business, in no particular order.

Raw materials: I've seen a lot of businesses collapse when there was a sudden surge in raw material prices.

Raw materials could be oil/petrol, but could also be wheat, cotton, wood, steel, coffee or whatever. Any raw material's prices will fluctuate.

So when raw material prices shoot way up, one thing you could do is jack up the prices of your product. But still you will notice fewer clients in shop.

budg001_400Bottom line: you want to keep an emergency fund or hoard products in a storage room if your product is non-perishable for if raw material prices shoot way up. And you want plan B, plan C or plan D if raw material prices keep going up.

Production line machines: the problem with the machines you use to create your products is that there are better machines being made at this very minute. Your competitors will start using better machines, and you will be pressured into buying better machines, be they computers, assembling machines, or sowing machines or whatever.

So you want to keep parts of your budget in a special place or account that will be used in the event some kind of machine must be purchased, or in the event you have to keep up with technology.

Also keep in mind that you will have to train/hire staff to use those machines. And I've seen a ton of businesses fail because they did not train their staff to use the machines properly.

Here's how the cycle goes (kind of like in Charlie Chaplin's modern times): company purchases new machine → Employees don't know how to use the machine → Production fails → CEO in big trouble → Clients surprised the shelves are empty.

Staff and labor: Now some companies believe that staff works better when they are kept in the dark. So they don't tell their staff anything and improvise orders that staff is expected to execute the very minute they are told what to do.

But keeping staff in the dark is never a good thing. Staff tends to think about its reputation and they are individuals who plan their careers long-term. So if there's sensing their reputation might suffer from their job at your company, or that they have no future within your company, they could quit their job.

Dealing with staff is the kind of dynamic no one has quite mastered. The reason is simple: everyone's different. Staff are individuals. Some want to be “respected.” Some want to be “loved.” Some want to be “discreet.” Some want to be “visible.” Some are “secretive.” Some “talk too much.”

Some company CEOs neglect staff, and that's when business can fail, because staff was neglected. CEOs tend to neglect staff because they don't want to deal with all the conflicts, gossip, competition, and complicated dynamic among staff.

The general idea is staff is kind of a “war zone” and you need to stay informed, and use your intuition to figure out when to intervene. Some CEO like to separate “best friends” (which is always a bad idea) while smart CEOs tend to reconcile enemies.

But this is about budget after all. I'd say plan an emergency fund that would help your staff keep their paychecks for a few months (or a year) if company activities were to come to a halt. This has happened during COVID-19, and it could happen again, and not just because of pandemics. There could be riots in your town, there could be natural disasters, there could be orders to shut down activity for war-time relief efforts, or because of a Coup d’état, or for a variety of other reasons.

Labor will tend to be your biggest expense because workers are paid monthly, and their pay adds up.

You could have two problems with staff. You could be understaffed, which leads to overwork, which leads to mistakes and poor quality of service.

You could be overstaffed, which leads to boredom, conflicts, unionizing, and bored workers asking for more pay and better “working conditions” such as “fewer hours” (a lot of them will complain that if there's no work, they shouldn't show up, but they should still get paid. Urban legend has it there are companies where “reserve staff” stays home, does nothing, and gets paid a ton of money.)

Client relations

If you are a company, you are basically serving clients.

Here are mistakes I've seen:

Companies that try to “impress” clients. Clients want to be served, rather discreetly, and leave once they are served. So you want to provide a clean, discreet environment where their purchases and activities are confidential.

Companies that “resent” their clients. You wouldn't think they exist, but they exist. During boardroom meetings, bad, terrible CEOs spend hours on end complaining about client behavior. That's not good.

So you want to spend a little bit of money thinking about how you serve the clients. And you want the environment to be clean, the client to have as much anonymity as possible, and the client to be informed about his choices, without being flooded with too much information.

Research and development

This is one area that many, many companies neglect. And they collapse because they neglected R & D (think about all the 1990s tech companies that made cameras and film and cassette tapes and what not).

So in your R & D lab you want to look at the following:

-What are my competitors doing? You want to know all your competitors, near and far, and what it is that they are doing. A big mistake is a lot of companies forbid mention of competitors in any conversation. Not good.

-What are the new technologies in the area? You want to survey whether there are new machines or techniques that make better products. You can test and try those new machines and techniques, and perhaps come up with a new product.

-Adjusting design, methods, techniques, client relations etc. Here's what I recommend. That you go where your product is being distributed (at the supermarket, at some specialized store) and that you look around to see what's surrounding the distribution center.

At the supermarket, maybe your product is placed between two products from competitors that are likely to get picked.

At specialized stores, maybe surrounding stores are more visited than the one providing your product.

And if you have brilliant minds innovating, let them innovate, and test their new products!

In sum, think; think more, R & D should really be the backbone of your business. And R & D should be taken into account in budget prospections.

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