Budget from a conservative base, separate committed costs from discretionary ones, set review points rather than a single annual figure, and decide in advance what you would cut first.

The temptation to skip it

After two years in which almost nothing went as planned, the annual budget looks like an exercise in fiction.

Which is a reasonable reaction and the wrong conclusion.

The value of a budget was never its accuracy. It is knowing what you are committed to, what is optional, and at what point you would have to act.

Those three are more useful in an unpredictable year than a stable one, because the decisions come faster and with less warning.

Separate committed from discretionary

The distinction that does most of the work.

Committed costs continue whether or not the year goes well: premises, wages, insurance, hosting, licences, and anything contractual.

Discretionary costs are decided month by month: advertising, equipment, subscriptions you could pause, contractors, and anything you would stop if revenue fell.

Knowing the first figure tells you what the business costs to exist, which is the number that matters in a bad quarter.

Knowing the second tells you how much you could remove and how quickly, which is the number that matters when you need to act.

Most small businesses have never separated the two and are surprised by the ratio when they do.

Budget from a conservative base

The approach that survives being wrong in the more likely direction.

Take last year's actual revenue rather than a growth assumption, and build the committed costs against that.

If the business works at that level, it works. Growth then funds discretionary spending rather than being required to cover the basics.

Budgeting from an optimistic figure produces committed costs that only work if the optimism arrives, which is how businesses end up carrying overheads through a quiet period.

Where you genuinely expect growth, plan for it in the discretionary half, where it can be stopped.

What to decide in advance

The third is the one worth writing down explicitly, since the things cut first in a panic are frequently the ones producing the recovery: marketing, maintenance, and anything with a delayed return.

Review points, not a single figure

The structural change that suits an unpredictable year.

Rather than one annual budget assessed in December, set three or four points where you look at actuals against the plan and adjust.

At each, ask a short set of questions: what has revenue actually done, what does the committed cost picture look like, and does the discretionary spending still make sense.

Put those dates in the calendar now, because a review that depends on somebody noticing does not happen.

Quarterly is sufficient for most small businesses, and it converts a forecast into a series of decisions, which is what you actually needed.

A worked example

A firm abandoned budgeting entirely after a disrupted year, on the grounds that it had been useless.

When trading slowed the following spring, they had no view of what they were committed to and made decisions in a hurry, cutting advertising first because it was the easiest thing to stop.

Enquiries fell over the following two months, which deepened the problem they were reacting to.

The next December they did something simpler than a full budget: one page separating committed from discretionary costs, a conservative revenue base, an order in which things would be cut, and four review dates.

The following year was also unpredictable and the decisions were made calmly and in a better order.

Their assessment was that the page had taken ninety minutes and had been worth more than any forecast they had produced.

Keep a buffer and name it

The item most small business budgets omit.

A reserve covering some period of committed costs is the thing that converts a bad quarter into an inconvenience.

Name a target, even a modest one, and treat building it as a budget line rather than as whatever is left over, since whatever is left over is nothing.

How much is a judgement, and three months of committed costs is a commonly cited figure that many small businesses will find ambitious and worth aiming at over several years.

The point is having decided, since a business with a stated target and half of it is in a considerably better position than one that never set a number.

Plan the good outcome too

An asymmetry worth correcting, since uncertainty is usually planned for in one direction only.

Decide in advance what you would do with an unexpectedly good quarter: reduce a debt, build the buffer, buy the equipment that has been deferred, or add capacity.

Without that, good periods are absorbed into general spending and produce nothing durable.

Write two or three items in order, with rough amounts, in the same session as the cutting order.

That takes ten minutes and it means a good quarter changes something rather than simply feeling better.

The counter-case

Formal budgeting can be disproportionate.

A sole trader with predictable costs and variable income may get everything useful from knowing their monthly committed figure and holding a buffer, without producing anything resembling a budget.

There is also a risk in over-planning for uncertainty, where a business spends its attention on scenarios rather than on work, and arrives at the same place having done less.

And conservatism has a cost: a business budgeting for a poor year and getting a good one may have declined to invest at exactly the moment it should have.

Keep it to a page, separate the two cost types, set the review dates, and spend the rest of the time on the business.

The ninety minutes

  1. Separate committed from discretionary costs.
  2. Total the committed figure monthly.
  3. Use last year's actual revenue as the base.
  4. Write the cutting order, and what is protected.
  5. Write what a good quarter buys.
  6. Name a buffer target.
  7. Put four review dates in the calendar.

Step one is the whole exercise for most small businesses, and the monthly committed figure is the number worth knowing whatever else you do.

The running costs of the site itself are covered in budgeting for the year after launch.

Frequently asked questions

Is a budget worth producing in an unpredictable year?

Yes. Its value was never accuracy. It tells you what you are committed to, what is optional, and at what point you would have to act, which matters more when decisions come fast.

What is the most useful split?

Committed costs that continue regardless against discretionary ones you could stop. The first is what the business costs to exist; the second is how much you could remove and how quickly.

What revenue figure should I build on?

Last year's actual, not a growth assumption. Growth then funds discretionary spending rather than being required to cover the basics.

What should I decide in advance?

What you would cut first and in what order, at what point, and what you would not cut under any circumstance. Marketing and maintenance are often cut first and often produce the recovery.

How often should I review?

Quarterly, with the dates in the calendar now. That converts a forecast into a series of decisions, which is what you actually needed.

Should I plan for a good outcome too?

Yes, and few do. Decide what an unexpectedly good quarter buys, or it will be absorbed into general spending and produce nothing durable.

West Coast Media Solutions Inc. provides web design, web development, hosting, digital marketing, and business consulting to organisations across Canada, drawing on more than twenty-five years in the field.

Given up on budgeting?

Spend ninety minutes separating committed from discretionary costs. That one page is worth more than any forecast.

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