The World of Flexible Budgets and How to Successfully Navigate Them

Working with a flexible budget can be a valuable tool for businesses, especially in uncertain economic times, as it allows companies to adapt to changing circumstances and make the most of their resources. A flexible budget can be adjusted based on changes in the level of activity within a business.

To get the most success out of a flexible budget, accurately forecasting your revenue and expenses is key along with regularly updating your budget to reflect any changes in your business. Here are a few ways to make flexible budgets work for your team.

1. Start by setting overall goals and targets.

After a clear understanding of your overall business goals and targets, determine what resources and investments are necessary to achieve your goals. If your goal is to increase revenue by 20% in the coming year but you have been experiencing longer buying cycles due to the turbulent economy, strategically scaling marketing and sales budgets in the early part of the year may be needed.

However, that does not mean eliminating budgets altogether. You will need to consider what additional investments in marketing and sales will be necessary to achieve your revenue goal in a tough economic climate. Rethinking how to overcome the obstacles faced in the first half of 2023 may be needed when creating budgets. This may include exploring new avenues to find customers who are further along the buyer's journey or additional cross-selling and upselling opportunities for current customers. It could include shifting some marketing budgets to focus on analog programs versus exclusively digital. In an uncertain economy, all avenues should be explored to get the most out of your budget and still meet your revenue goals.

2.????Develop a baseline budget and variations.

Most executives are familiar with creating low, medium, and stretch revenue goals and budgets. The medium budget most likely is your baseline budget which is created on past performance in key areas such as revenue, expenses, and profit. However, unlike normal budget creation, considering the additional obstacles that you may be facing and what would be needed to reach the revenue targets should be carefully considered and incorporated into all levels of budget planning.

With the example above of longer sales cycles, considering how to meet revenue targets with the current pipeline and current customer base may require shifts in the budget that you normally wouldn’t consider. This could include meeting top prospects in person versus virtually or developing a customized campaign for one potential multimillion-dollar customer that is midway through the buyer’s journey. Planning for the different scenarios and possible outcomes, will shape your flexible budget and create milestones that will let you know when to accelerate your spending or pull back.

3.????Monitor your actual costs and revenues while keeping an eye on key milestones.

Regularly monitoring your actual costs and revenues to see how they compare to your budget is something every executive is familiar with doing. However, in an uncertain economy, this is even more critical. When you see a variance, determine whether it is due to a change in business activity or some other factor. If the variance is due to a change in business activity, update your budget to reflect the new information. If there is some other factor at play, figuring out how to overcome it while still reaching your revenue targets is what keeps most executives up at night

When working with a flexible budget, monitoring spending and revenue on a weekly or even daily basis may be needed. This, of course, depends on your business model but the point is that more frequent monitoring is needed. In addition, your budget may have new tactics included, these are especially important to monitor. If they are working, scaling them could have major benefits. If they are not, adjusting or even pausing them may save your budget.

Working with flexible budgets can be difficult for companies and executives. It can also be extremely difficult for some teams, especially if they have never worked with a flexible budget before. As a business leader, some tips to help the team work well with a flexible budget are:

1.????Communication

Communicate regularly with your team and make sure everyone understands their role in achieving the revenue goals. This will help ensure that everyone is working towards the same objectives and that your efforts are cohesive and effective. Explaining why this is needed and how the team is going to work with it is crucial.

When teams understand the why behind flexible budgets, some of the anxiety and ambiguity are erased. In addition, when communicated properly, it can motivate teams to reach the smaller milestones set so more budget will be released for bigger programs. In some ways, flexible budgets can keep the team laser-focused on the bigger picture and help the overall company navigate the crazy economy.

2.????Prioritization

Prioritizing your activities and allocating your budget based on their potential impact make flexible budgets work best. This will help you make the most of your budget and ensure that your efforts are aligned with your goals.

With limited budgets, creating fewer programs that have a major impact can be challenging. However, being innovative and thinking creatively, can lead to strong results. When budgets are limited, it takes longer to plan which program could have the best results because teams are evaluating all aspects of the program before launching it to ensure its best success. When budgets are a little more liberal, there is the ability to test and adapt new programs. Both can result in great success however prioritization is needed for each one.

3.????Monitor and Adjust

Be flexible and willing to adjust your budget and strategy as needed. A flexible budget is only effective if you are willing to adapt to changes and adjust your approach based on what's working and what's not.

This may sound like a standard operating procedure for most companies but adapting strategy and budgets in an uncertain economy is tougher than it seems. Most executives are familiar with adjusting strategy but usually, after multiple quarters have passed and optimizing the programs is showing no success. In an uncertain economy, moving faster and making quicker decisions are needed. For early-stage companies, this may not be as challenging because they are used to this mindset in start-up life. However, for more established companies, this can prove extremely difficult.

Overall, the key to success with a flexible budget is to be proactive, regularly monitoring and updating your budget, and adapting as needed. In addition, communicating frequently with your teams and setting firm priorities with help flexible budgets be used most effectively. When times and circumstances are uncertain, companies that are strategic, agile, and adaptable will usually come out ahead of their competitors.

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?Rhonda Giedt is a marketing executive focused on solving challenges to spur revenue growth in companies. She has experience with marketing companies in SaaS, manufacturing, and 3D printing. She is also an avid sports fan of college football, golf, premier league football, and many others.

She is also an Envoy Core Group Leader for Pavilion, start-up advisor, and mentor to marketing and business professionals.