Can corporates avoid budget horrors as they wait for Trevor’s fast ball?

This will be Trevor Manuel’s most difficult budget as Finance Minister; his address on 11 February will be listened to with anxiety by a corporate South Africa, already transfixed by a global economic bloodbath and growing strains on the local economy.

“You can keep your eyes on the bad news and it is unprecedented in our life times, or corporates and small and medium businesses can sharpen their pencils, send staff on courses to ensure they are super-skilled and begin planning now for wealth,” Liza van Wyk, CEO of management and business support training organisations AstroTech and BizTech said.

“The curve ball in this scenario is going to be how well you plan, how effective your budget is and that will determine the management of cash flow and ultimately a company’s capacity to grow – or collapse.”

Already company failures soared 68% by end December 2008 bringing the overall increase in 2008 to 4,8% and personal bankruptcies rose 51,5% in the first 10 months of 2008, StatsSA has reported.

Manuel warned at Davos that South Africa saw economic growth slump to an annualized 0.2 percent in the third quarter, the slowest pace in a decade, while companies such as Lonmin Plc, the world’s third-largest platinum producer, are firing thousands of workers. Growth is forecast to slow to 3 percent this year, from an estimated 3.7 percent in 2008.

Old Mutual Investment Group economist, Rian Le Roux similarly says that data from the US, UK and Japan are “the kind of numbers that we’ve never seen before.” He said that economists have been tripped up by the magnitude of the problem, making “classic forecasting errors,” most of them underestimating the depth and range of the problem.

Van Wyk says this means that corporate budgeting has to be pristine. “We run an inhouse Corporate Budgeting course that is extremely popular and deals with all the financial minutiae of budgeting as well as big picture planning and forecasting

“The worst possible thing to do is to panic and begin hacking away at costs. If you offer retrenchment packages, chances are your best staff will leave first because they’ll find it easier to get new jobs, the dregs will remain. Expertise is difficult to replace.

“R

Or follow the example of former Premier Milling boss Tony Bloom in getting all top executives to drive VW Golf’s than cutting back on technological development. If you’re going to buy property, the pundits say the third quarter will be the time. Wait, be patient, sit and watch before you act and get an effective budget in place.”

Some markers the AstroTech Corporate Budgeting course recommends for a profit budget:

• Establish the opening bank balance
• Forecast future revenues
  - Cash and credit sales
  - Income from investments
  - Any other types of fees earned
  - Sale of assets at a profit

The steps for a cash budget are somewhat different:

• Establish the opening bank balance
• Forecast future cash inflows
  - Cash sales
  - Debtors payments
  - Income from investments
  - Loans received and shares issued
  - Sale of assets
  

Constantly analyse the budget, variances could be the clue to challenges or new opportunities. Cashflow management is critical as poor cash management could cause a bankruptcy despite a project being very profitable.

“Budgeting properly allows corporates – and government – to achieve their strategic goals. It highlights times during the year when additional resources will be needed and predicts future resource shortage and surpluses.

“There are some simple golden rules. Have the most skilled financial staff possible; regularly send them on courses to upgrade not just their accounting or book-keeping skills but to keep in touch with the plethora of corporate governance rules and new tax and corporate law requirements necessary. AstroTech also runs courses on IT and the Law and Broad Based Black Economic Empowerment which all impact on the bottom line.

“Most of all times like these require business leaders to have vision and a sense of optimistic realism, yes these times are bad, very bad, but the measure of the great is how well they face up to challenge,” Van Wyk said.

FOR MORE INFORMATION CONTACT:
Liza van Wyk 011 582 3217 OR 011 582 3200 OR 082 466 8975 or liza@astrotech.co.za www.astrotech.co.za