What are the best ways to identify potential risks and opportunities in your budget?

Analyzing your cash flow separately from your income statement is key! Understanding how the business is performing is good, but we also need to follow the cash. To really conceptualize where the cash is going, sometimes it’s helpful to get the big picture first. I often run an analysis of what percentage of total cash in has been spent on X. Clearly identifying where you are spending in more general areas should focus on: - COGS - General & admin expenses - sales & marketing expenses - research & development expenses - purchase of assets Make sure the way you are allocating cash to these areas is in line with your business strategy. If it’s not, adjust.

La mejor manera es mantener una conversación o seguimiento activo con cada departamento de la empresa, de esa forma se podrá analizar los avances en las gestiones individuales o grupales y el presupuesto se va moldeando o actualizando. También se analizan factores externos, como en el caso del Ecuador, cuál será el impacto en la economía del consumidor final con el aumento del IVA (RETAIL) o el cambio de Gobierno en el caso de negocios con el exterior.

Apart from internally identifiable risk and opportunities in your budget cash flows, it is important to understand the market dynamics and the economic headwinds and the tailwinds of the economy. You must see the rear mirror , side mirrors time to time to see the resistance and avoiding accidents. Internal KPI , external Interest rates, taxes, policy decisions are few of the risks you might check based on political dynamics, and adjusting your budget forecasts accordingly is the key to avoid bad outcomes of budgeting.

Constant monitoring mechanism through period evaluation of expected standards against the reality. As such management will have a sense of urgency to mitigate business risk or explore potential opportunities.

One of the best ways to understand the risks in your forecasting is to test it's sensibility. You need multiple scenarios where the important variable change significantly in order to understand where are the bigger risks.

The simplest and most obvious way would be to compare the budget to the previous year's results. Perform a factor analysis to understand what drives differences: volume, mix, price increases, cost inflation, etc. How are these factors aligned with the company's vision? Will inflation be that high? Can you reach that volume increase? These factors represent your potential risks and opportunities

This is huge. To get a sense of possibilities, I often start with a base case, then build a low case and a high case based on small adjustments to a few key levers. One of the biggest areas that needs to be adjusted between scenarios after that is headcount! Make sure that your budgets are in line with the top line revenue goals in each scenario. Not overkill, not underfunded. Always thinking, is this enough to support the growth I’m projecting in this scenario?

I find reviewing your results weekly against your targets with your entire team helps to bring awareness to great performance as well as identifying opportunities to improve performance. Never miss an opportunity to praise and celebrate success with the team. This shot of dopamine goes a long way to encouraging performance within the team.

This is more something you do over time than all at once. Run a forecast v actual report to compare what you budget to what you spent each month. You will start to identify variances and then adjust the budget to make it more accurate. Or you can adjust your spending to stay closer to the budget you set. Either way, consistently looking at this kind of variance report works wonders for connecting you to your numbers.

Seeking external advice is one of the best tools available to business decision-makers. By engaging with an experienced individual outside one's unit or company provides a fresh perspective. Those who are in the weeds miss things seen by those with a bird's eye view. An experienced mentor can also provide an important sounding board and point out risks or opportunities that the decision-maker may have overlooked. That's true even if the mentor is from within the organization because the mentor can draw from experience or industry knowledge.

Identifying risks and opportunities in your budget involves tracking income and expenses, reviewing spending habits, considering future events, and staying informed about economic trends and most importantly build in a buffer for surprises.

Your budget is your performance guide for the upcoming period ! In order to identify risks that could affect your business you need to get some details from the following sources : -Chamber of commerce and align your growth with the expected economical plans. - Align your budget with your head office instructions and goals - in the case of chains - As they have some more knowledge about the future due to their interactions with the different business owners. - Check with your local Municipality in regards to their road and work plans that could impact your business . -Check the Geopolitical and Macroeconomic updates that could have a risk on your budgeted business figures!