Planning and Budgeting for an Uncertain 2010

If you are like most other small business owners, you've had to make changes to your company over the last 12 to 18 months to remain competitive. For many, the 2009 projections and budgets went out the window before January 1st. Considering how tumultuous the economy still is, how can you create a more effective and reliable budget for 2010?

Compared to years prior, the budgeting process for 2010 will involve more planning. Before you sit down to budget, consider what changes you may need to make next year. Have longstanding customers been buying less, meaning you need to focus on business development to get more small accounts? Do your clients want more customized offers? Are your staff's skills transferrable to your new business goals, or will you have to do additional training or find new employees?

Even established businesses have had to rethink what they sell, who they sell to, and how they operate, and so have their customers. There's no guarantee that what they purchased, and why they purchased it, is the same as it was 18 months ago.

Whether you've made minor tweaks or wholesale changes to the business model, part and parcel of the strategic plan is a budget that allows for implementation, and includes not only income and expenses, but also the capital required to support changes in products and services and the promotion of these new services. Here are some ideas you can implement to help you budget for 2010.

Research Availability of Capital: If your business plan requires a major infusion of capital in 2010, start planning now on how this money will be raised. While credit is still available to those companies who can demonstrate that they are viable, many firms have had a difficult time maintaining their available credit in the slumping economy.

Meet with your banker and other financial advisors as soon as possible to find out what needs to be done before the loan is actually needed. If banks won't lend, you may want to consider private equity providers and other private lenders who may want a piece of the company in return for their financial support. Make sure that your strategic plan and budget show the lender or investor that you are financially capable of repaying and are a worthy investment.

Staffing and Internal Resources Review: Businesses need to evaluate their internal resources especially their staff—to determine if they are best suited to move the company forward. If a firm has changed dramatically, there may be a need for a staff overhaul. Adjust your payroll budget accordingly. Be very careful about hiring staff in anticipation of new business. Even if a consensus says the recession has lifted, it's prudent to play it safe. It's easier, and less costly, to grow your staff slowly than it is to shrink your staff.

Examine Your Customer Base: When a new product or service mix is being offered, business owners need to review their client base to accurately project future sales. Many businesses have been shocked when long-standing customers—themselves victims of the economy—drastically cut purchases or switched suppliers because of changes in their industries. It may be necessary to aggressively pursue new markets with lower-end products.

When budgeting for the creation of a new product and the pursuit of a new market, business owners should be conservative. Underestimate a sales goal and overestimate a budget within expected revenues. It's not the time to spend $1 million if you believe a new service or product will bring in $100,000 in revenues in the short term.

Evaluate the Sales Force and Sales Process: Each company needs to reevaluate how they sell. Some small businesses have realized that selling through relationship managers is more effective than having dedicated sales people. Relationship managers are a combined salesperson and customer service rep. The idea is that the customer service rep knows the client better and can better cross-sell other services or products than a traditional salesperson who drops in on an account just to sell.

Because relationship managers have regular contact with the customer, they are more likely to have gained their trust, and have a better understanding of the challenges and issues a customer faces. With all expenses being scrutinized, many buyers are limiting their purchases to those that solve a specific problem. Relationship managers are in the best position to identify these challenges.

Salespeople, in the traditional sense, may not be needed anymore, creating a cost savings from lower compensation costs. Marketing communications should now be less about building a company's brand, and more about getting the phones to ring. Marketing budgets, typically a percentage of revenue, don't need to be increased or decreased, but rather redirected toward communications vehicles with strong "calls to action" that drive sales.

Consider Expanding Through Acquisition: Your competition is hurting, and this may be the right time to seize the opportunity. Many acquisitions are being made through "earn-outs" where the buyer pays the seller over a period of time based on the sales or profitability of the seller's business. Thus, no outside financing is required. You can realize a substantial profit boost if an acquisition is done right. Although a business owner doesn't require cash up front to acquire another company, they should have funds to pay for costs associated with the transaction (legal fees, for one), and also ensure that they have the funds available to integrate the acquired firm and support it properly.