How to Manage an SME Budget during COVID-19

One of the largest global health crisis memory can recall, COVID-19 has brought more economic destruction than one could have ever anticipated.

The large scale global crisis has sent economies across the world crumbling into pieces, which even the strongest nations have been unable to avoid. The peak of the pandemic caused a new economic forecast to come into being, somewhere between June-April 2020.

As per the new forecasts, the future of global economies looks increasingly grim, which is not surprising considering the global economic recession the pandemic has triggered. In the face of the estimated impact of COVID-19 on global unemployment, it is not difficult to foresee the extreme challenges SMEs will have to face to sustain operations.

A recent survey expects that employee earnings of small and medium-sized enterprises will suffer more than those of larger firms. In fact, most vulnerable in this regard is the younger employees.

As per the survey prediction, there can be an increase in the wage premium of larger firms. However, the minority business owners, small and medium-sized firms, low-income workers, and entrepreneurs with lesser educational attainment are at risk of losing the most.

As dire as the situation seems right now, there is always a silver lining. If small and medium firms would look at it from a positive perspective, the economic forecasting can help in managing SME budgets better.

Despite the turbulent economic conditions currently, small and medium-sized business owners can still gain control of their company through their SME budget. Managing your SME budget well despite the pandemic will give your financial goals some leverage and save you from overspending.

Operations came to a rapid halt worldwide, and businesses saw a staggering decline in cash flow when states put lockdowns in place. Now that we can see the situation normalizing and restrictions lifted, business operations are returning to life. With this evolving situation, SMEs need to adapt their budget to the new situation.

Here are some modifications to help you manage your SME budget despite the pandemic.

1. Look at the numbers

There is hardly any business in the world right now that can claim that the novel coronavirus did not have any impact on its operations and cash flow. Some businesses might have had to close down while perhaps some business owners managed to keep some income coming in.

Whatever the case may be, the first few couples of months of the raging coronavirus must surely have affected your business income in some way or the other. This is why your business budget may be in some dire need of tweaking right now and most probably cutting down on several expenses.

SMEs are right now comparing their numbers. If your firm experienced a negative impact on cash flow due to the pandemic, you need to reduce spending and perhaps minimize operations temporarily.

However, if your firm is fortunate to have held on to a steady earning despite the health crisis, you still need to weigh logistics to ensure your business spending does not equal or exceed your income. Prepare an SME budget by first tracking your firm’s finances in the accounting records.

2. Lean on your emergency fund

Most businesses maintain an emergency fund since the establishment to help in turbulent times. A global pandemic surely counts as a turbulent time, and if your business needs an extra helping hand right now, do not hesitate to include the emergency fund in your SME budget.

The priority right now is to keep operations in the process so that there are some output and returns in the near future. Once your firm regains its balance, you can build the emergency fund all over again. For now, if there is a cash reserve and the business needs it to survive for the next three to six months, go ahead and use it.

3. Forecast your financial future

Financial forecasting is an essential tool that helps you predict the future financial health of your firm based on reports and financial data. With the help of forecasts, you can measure the expenses, income, and other aspects of your business and build your SME budget.

Such estimations prove helpful in developing projections for cash flow, balance sheets and profit and loss statements. With financial forecasting, you manage your budget better and enable your business to revive. In fact, now that business owners are well aware of the full economic impact of a global pandemic, forecasting will be even more instrumental in altering SME budgets and preparing for future financial emergencies.

4. Reassess your business goals

Coronavirus has made one fact very clear to the majority of firms worldwide: it is time to reanalyze their budget and the financial goals they need to work upon.

Firms need to reevaluate future goals to ensure they align with the new budget. Firms may have had larger and widespread operational goals prior to the pandemic. Nonetheless, the evolving economic situation has made it necessary for businesses to make drastic changes.

To this end, you must ensure your SME budget covers the priorities for now and does not address the endeavors you had planned before the pandemic broke out.

How countries are responding with SME budget policies

The current challenges SMEs are facing is not a secret, which is why we can see several countries right now taking proactive measures. The first global concern remains the public health but taking precedence right after is the economic blow businesses are suffering.

States are urgently establishing measures to help sustain the liquidity, at least for the short term, of SMEs and entrepreneurs. The initiatives currently are aiming at present liquidity with policies taking form in various shapes.

Many countries have rolled out policies that will cushion the entire economy and businesses against the blow. You will see Central Banks across the world try to ease monetary conditions by regulating lending. With this initiative, commercial banks are offering SME loans so that firms can use the presence of an SME budget for revival.

Some of the policy measures we see to support SMEs are as follows:

  • Many countries have established schemes wherein they can monitor how the crisis is affecting SMEs. This will help them boost the SME associated policy responses as needed.
  • Several countries are also regulating SME loans and structural policies to help firms re-establish themselves according to the new working structure. With this initiative, the countries are ensuring the SMEs have the required digital technologies for remote working and helping them find new channels of sales, new markets and etc. for operational activities. Such policies are not just addressing immediate challenges but also empowering the structure, future, and resilience of SMEs.
  • Some countries have increased their direct lending to SMEs to strengthen their budgets against the revenue drop.
  • Many countries have also simplified, extended, or introduced loan guarantee provisions. They are enabling the commercial banks to be able to offer extensive loans to SMEs for a budget.
  • Countries have deployed measures regarding utility and rent payments, debts and social security payments, and also tax deferrals. Countries across the world are also currently adopting measures for late-payments and public procurements, or simply implementing tax relief on debt repayments. All of this indicates the strenuous efforts nations are making for reliving liquidity restraints.
  • Many countries are also acknowledging the fact of how SMEs are left with a reduced budget after the destruction the pandemic has caused thus far. A reduced budget means operation on a smaller scale, laying-off several employees and etc. With acknowledgment, countries are introducing measures pertaining to temporary unemployment, sick leave, and reduction the working hours. These measures are specifically addressing the struggles of the SMEs currently. Therefore, you can find several governments providing income support and wages to the temporarily laid-off employees currently and also companies to help them sustain employees.

The massive decline in demand and production has put SMEs in a tight spot. Their SME budgets are not currently enough to pay the wages and sick leaves of the affected workers. Governments are helping SMEs retain their budgets by contributing to wage payments and sick

Final thoughts – work smarter, not harder

The outbreak of coronavirus has forced SMEs to alter its operational activities and financial goals. With limited or non-existent budgets, it could be challenging to say the least, for small and medium-sized firms to survive in the near future.

A thorough and foolproof strategy is the need of the hour for SMEs to be able to maximize their budgets right now. While many SMEs are seeing the wisdom in closing operations temporarily and saving their budget to help reopen business when things improve, others are adopting alternative measures to attempt revival.

Despite the route SMEs take right now, it is important for every business owner to analyze their budget critically and ensure they utilize every resource available very wisely in business plans.