Episode B.024 Operational Budget

Introduction
This week we continue our focus on the post pandemic re-opening of business. Other than dealing with customer and employee fears, there is nothing different or special about today's show except urgency. Unlike other expansions at the end of a contraction, this was not a structural - it was imposed. Normally a contraction (recession) is a result of over supply and decreasing demand awaiting a unplanned event to prick the bubble. In this case the demand still exists with diminished supply and we have sufficient information to predict the beginning of an expansion. The purpose of IBGR programming this month is to prepare the entrepreneur for the turnaround. it will require acting with urgency over the next 4 months.
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Show Objectives
Building on the A.024 Show - Cash Budget, lets contribute to the accuracy of those numbers by looking at what you can contribute with this approach. The previous show analyzed what would happen if you received no more sales or additional revenue?  What would happen to cash flow and how much of a line credit you need to survive - exactly the scenario most of us just lived withe pandemic forced shutdown?

Our focus for this Show is contribution, what is required to start generating revenue and the costs of that investment.

What You Need to Know
The following a is an example of a spreadsheet you can build. It captures your operational focus for creating a budget and you can work forward from beginning to end or backwards end to beginning.

Forward: start with one account, you would this for every customer you have, and fill in the suspected sales numbers for the next four months. That assumes you know what the customer will buy or has on order. The math is simple and you can see how Total Revenue, Total Variable Costs, and Marin Contribution is calculated. The challenge for businesses coming out of the pandemic - I have no sales. Then let's work backwards.

Backwards: if possible for the selected customer, create another column for June of last year. Then starting on the bottom with last years margin, establish what your sales targets must be to match last years sales. This will give you an idea of how to budget for Marketing & Sales.
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What You Need to Do
Building your Operational Budget

Sample Operational Budget Spreadsheet

	June 2020	July 2020	Aug 2020	Sept 2020
Account	IBGR
Volume
P/S1	10,000
P/S2	5,000
Price Per Unit
P/S1	1.00
P/S2	2.00
Revenue
P/S1	$10,000
P/S2	$10,000
Total Revenue	$20,000
Less Variable Costs
P/S1 - Labor & Materials	3,000
P/S2 - Labor & Matwerials	4,000
Total Variable Costs	$7,000
Total Margin Contribution	$13,000
Account Margin	39.5%

As we did in the A.024 Show, our recommendation is build a multiple page (sheet or tab) spreadsheet and have this separate from the other budgets. The use a master sheet to bring all of the items forward to build a composite. The advantage - you can scenario plan by changing numners to look at the potential impact on the business.

​The best scenario is where you build the 4 Month Plan.