Setting Your Annual Budget Amid Economic Uncertainty

Budgeting-as-usual is a poor fit for times of economic uncertainty. The current moment requires drastic action, not a typical process. The authors recommend four steps as part of this year’s budgeting process: Tune up your financial warning system, maximize cash generation, lay out potential downside scenarios (for yourself and competitors), and don’t make the mistake of extrapolating from last year.

Many economic indicators are flashing red. Four out of five turnaround and restructuring experts tell us that they foresee a recession in their region; three out of four expect major changes in industry structure.  Companies are entering the planning and budget season at a time of high uncertainty — the “will it or won’t it” period that could precede a big downturn.  

Budgeting-as-usual isn’t up to coping with this moment. Performative austerity — a nip here, a tuck there, and hope for the best — won’t be enough. The guidance it…

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This article was written by Simon Freakley and originally published on hbr.org