SMEs: Expert Tips for Effective Budgeting During a Recession

After a drastic economic downturn, the UK fell into a recession at the end of last year and has impacted business owners ever since. In fact, according to a recent study by Capital on Tap, 60% of small business owners admit that budgeting for their business needs is becoming more challenging than ever.

With this in mind, Rebecca Alford, Finance Director at small business credit card company Capital on Tap has shared their top tips on how to create a recession-proof budget. This is part of a wider study to reveal where businesses are most likely to over and under budget and how often different industries are re-forecasting.

Three in ten (29%) business owners said that they under-budgeted their entire forecast in the last financial year

The survey shows it can be difficult to forecast correctly, with 29% of small business owners saying they under-budgeted their entire forecast in the last financial year, admitting shortfalls across all projected expenses. 

A further 31% of business owners said they under-budgeted utilities and maintenance fees, potentially due to fluctuating energy costs. Plus, 28% of small business owners under-budgeted equipment and technology costs. 

Business expense% of all business owners that under-budgeted for this
Utilities and maintenance costs (e.g electricity and gas)31%
Equipment and technology costs28%
Shipping and import or export fees23%
Advertising and marketing23%
Transport and logistics expenses22%
Insurance premiums22%

33% of small business owners have over-budgeted for HR consulting or outsourcing costs 

HR and consulting was the most over-budgeted expense for small business owners (33%), with all industries over-budgeting by an average of 8%. This may be due to initial setup costs for outsourcing contracts leading to higher budget estimates. 

Shipping and import or export fees (32%) was the next most over-budgeted expense, followed by loan payments (31%). 

Business expense% of all business owners that over-budgeted for this
HR consulting or outsourcing costs33%
Shipping and import or export fees32%
Loan payments31%
Research and development (e.g market research or product development)31%
Office space rental deposits31%

The sales and marketing sector re-forecasts their budget 30 times annually — the most of any industry

The research found that 46% of all small businesses review their budgets at least once a month, providing a good benchmark for other small business owners. But, in terms of industry, the sales and marketing sectors are reviewing their budgets the most (30 times per year). Additionally, travel and transport businesses review their budget an average of 24 times each year. 

The sectors reviewing their budgets the least are the hospitality and entertainment and events industries, both re-forecasting an average of five times a year.

IndustryAverage no. of times per year business owners from this industry re-forecasts their budget
Sales and Marketing30
Travel and Transport24
Education and Tutoring 14

Over half (56%) of entrepreneurs said that the recession has negatively impacted their business’s revenue and profitability 

60% of small business owners said that keeping to their budget has become more challenging because of the recession, and a further 56% said the recession has negatively impacted their business’s revenue.

In terms of industry, a staggering 70% of business owners in the entertainment and events, and technology and IT services, industries plan to re-forecast their budget because of the recession. 

Industry% who plan to re-forecast their budget, or have done so, due to the recession
Entertainment and Events 70%
Technology and IT Services 70%
Sales and Marketing 63%
Arts and Crafts 59%
Personal Care 56%

Rebecca Alford, Finance Director at Capital on Tap, provides top tips on how to create a budget, “Forecasting a financial plan for the year ahead is a vital tool for shaping your business’s strategy. The most successful forecasts look at ingoings, outgoings, and potential changes in the industry landscape and help a business to prepare accordingly. 

“The business world changes rapidly, and the landscape can shift at a moment’s notice. If your budget is unable to adapt to these changes, you might find that your business will struggle. 

“Another helpful tool is to use a business credit card. This can help to streamline cash flow management for SMEs, while a line of credit can help cover unexpected costs that aren’t accounted for in your budget.

“A contingency fund is essentially a buffer that can be used to cover any unanticipated expenses. It might seem unnecessary at first, but it gives you peace of mind that you’re ready for any unexpected changes and have something to fall back on.”

Brenda Berg

Brenda Berg is a professional writer with over 15 years experience in business management, marketing and entrepreneurship. Consultant and tutor for college students and entrepreneurs. She is passionate about covering topics on career, self-development, writing, blogging and others.