The Corona Virus Disease (COVID-19) pandemic has affected the way of life for everyone, starting from government level, to companies, to families and individuals. The economic landscape has changed altogether, the social and the financial included. Companies’ operations and priorities have changed, there has been pay cuts and stuff retrenchments.
Unfortunately, we are not certain when the situation will go back to normal, so that calls for activating the ‘new normal’ mode- changing the way we do things, especially how we spend or manage our finances. Below are some tips for organizations and individuals;
Reimagine the Business from a zero base.
Traditionally, organization leaders have balked at using zero-based budgeting as a means to understand the critical drivers of the business. This approach entails that expenses must be justified for each budget period. As companies are preparing for their 2021 budgets, many are realizing that they are starting from zero in some areas. During the pandemic period spending in some entities like travel, entertainment, internal events and procurement was greatly reduced. This kind of approach should continue to 2021. Companies should sit down, examine and determine the cost management principle so as to spend on things that are really essential. The mindset that some areas are untouchable ought to change to pave a way for a completely new way of doing things which can also open opportunities for better methods. The risk should be taken- calculated of course.
Hold back some spending centrally
In most companies, budgets are typically fixed for the year, but in response to COVID-19 pandemic, many businesses have had to be more flexible, shifting resources as needed in order to survive. To monitor the situation in real time, for instance, they have deployed spending control towers, cash war rooms, and dashboards. And they are using different kinds of key performance indicators (KPIs), such as cash-burn rates of suppliers and distributors and the growth rate of COVID-19 cases.
Budgets should also include centrally controlled pools of funds to be used when certain triggers so indicate. The centrally managed pools of funds should be focused on supporting variable-cost categories but may also be released in stages throughout the year to support capital expenditures, projects, and hiring initiatives. Projects are then broken down into phases which are subject to go or no-go decision.
Assign finance to high-priority areas
To guard against burnout, companies must set priorities appropriately. They should rely on top-down approaches- with clear directions to the staff on issues like expected analyses, outputs and timelines. Companies can set such priorities using a driver-based models. Such models can give companies some insight on what really matters; topics, projects and initiatives that will require immediate attention.
An Emergency Fund
To address emergency spending needs or revenue shortfalls, a contingency envelope could be a possible tool. This mechanism increases the organization’s capacities for swift reaction to sudden shocks. Emergency funds should not be used as an alternative of proper budget preparation or as slush funds. A large contingency fund limits organization’s ability to appropriate funds elsewhere. It is therefore crucial to have clear and transparent rules that triggers the use of the fund, on allocation of the money and transparent reporting. In preparation for 2021 financial year organizations should be exploring ways to provide for larger contingencies in light of the uncertainties while maintaining appropriate safeguards.
Still on the emergency fund, individuals, just like organizations need to look onto setting it up especially with a crisis like this knocking on each one of our doors. Many factories have been shut down, while some are still operating but suffering with drop in sales. Employees are being retrenched, salaries cut while some are delayed. However, with all these challenges, household expenses; food, bills, rent, loan payments remain more or less the same even in a pandemic. That is why you need an emergency fund so that in an unfortunate circumstance you can still dip in and stay afloat until you get back on your feet to maintain financial stability.
A Retirement Plan
No matter how bad the current situation may seem, tomorrow is not promised to anyone, therefore as an individual you should not make a mistake of prioritizing the present over the future, as the present nightmare will ultimately end. While managing finances, it is crucial not to temper with your long term plans like retirement. Try to save for the present by cutting other avoidable expenses like entertainment, vacations and pleasure, overstocking essentials and panic buying. Retirement should not be tampered with unless in forcing situations.
A Healthcare Plan
In this pandemic, it is difficult to tell when and how one will contact the virus, or any other disease- even the people with some more insight and knowledge of how to avoid catching the virus has eventually caught it. It is therefore more crucial in this event to make a health insurance policy a priority. Even if you have an employer-funded policy, it is important to get a private plan. If you were depending on employer-funded insurance policy and have recently lost your job, it will not be a waste to use some of the savings to get a private insurance policy. Hospitalization can exhaust finances in an unfortunate event of sickness, that is why it is essential to be equipped with a medical plan to cushion you against such costs.
Diversification of skills and Income sources
Owing to the pandemic, priorities have changed, while other businesses have seen a demise, some skills and professions’ demand have declined, some sectors have thrived. It is important in this period to observe the market and examine which skills are on high demand, which businesses are thriving then get aligned with them so as to keep making more money and keeping financially afloat. Investing in different business sectors is a sure way to go in this time period. This is important because even if you have an emergency fund it will not get overwhelmed by ever escalating expenses.
A strong and well thought of financial plan is crucial during this pandemic period to avoid stress and strain should situations take a wrong turn. Even in an event of loss of basic income source or any related case, you would have something to lean on.