How do you prepare for unexpected expenses in your corporate budget?

1 Plan ahead

The first step to prepare for unexpected expenses is to anticipate them as much as possible. You can use historical data, industry trends, risk analysis, and scenario planning to identify the potential sources and impacts of uncertainty. For example, you can estimate how much revenue you would lose if a major customer cancels their contract, or how much extra costs you would incur if a supplier raises their prices. By planning ahead, you can prioritize your spending, set realistic targets, and allocate resources accordingly.

2 Create contingency funds

The second step to prepare for unexpected expenses is to create contingency funds that can cover them. Contingency funds are reserves of cash or liquid assets that you can access quickly in case of emergency. You can build your contingency funds by setting aside a percentage of your income, reducing your debt, and diversifying your investments. You should also review your contingency funds regularly and adjust them based on your changing needs and risks.

3 Adjust your forecasts

The third step to prepare for unexpected expenses is to adjust your forecasts as soon as you encounter them. Forecasts are projections of your future income and expenses based on your assumptions and expectations. However, when unexpected expenses occur, your forecasts may become inaccurate or outdated. You need to update your forecasts by incorporating the new information, revising your assumptions, and recalculating your numbers. By adjusting your forecasts, you can avoid overspending, underperforming, and missing opportunities.

4 Communicate effectively

The fourth step to prepare for unexpected expenses is to communicate effectively with your stakeholders. Stakeholders are the people who have an interest or influence in your corporate budget, such as your managers, employees, investors, customers, and suppliers. You need to inform them about the unexpected expenses, explain how they affect your budget, and share your action plan. By communicating effectively, you can build trust, confidence, and support among your stakeholders.

5 Monitor and evaluate

The fifth step to prepare for unexpected expenses is to monitor and evaluate your progress and results. You need to track your income and expenses, compare them with your forecasts and targets, and identify any gaps or deviations. You also need to measure your performance, assess your outcomes, and learn from your experiences. By monitoring and evaluating, you can identify what works and what doesn't, and make improvements for the future.

6 Adapt and improve

The sixth step to prepare for unexpected expenses is to adapt and improve your corporate budget. You need to review your budget periodically and make changes as needed. You may need to increase or decrease your spending, revise your goals, or modify your strategies. You also need to incorporate feedback, best practices, and new insights into your budgeting process. By adapting and improving, you can enhance your efficiency, effectiveness, and resilience.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?