Coronavirus Budget Management: Race Don't Chase Strategy

Understanding "Race Don't Chase"

• 💡 "Race Don't Chase" is a budgeting principle for economic downturns where you cut expenses faster than revenues fall.
• 🎯 The goal is to make expenses race revenues to the bottom, aiming to make money even in a down market.
• ⚠️ This strategy combats "costing inertia," where spending habits lag market and revenue changes, leading to losses.

The Dangers of Chasing Revenues

• 📉 When revenues drop by 2%, cutting expenses by only 2% results in continued losses if costs are still trending upwards.
• 💸 This "chasing" phenomenon means a company can lose money every month of a recession.
• 📈 Profitable companies during a downturn have capital to invest in new plants, services, or acquire competitors during the next market upswing.

Key Disclaimer: Not a Budgeting 101 Cast

• 📌 This cast focuses on managerial economics in a downturn, not basic budgeting principles.
• 📚 Future casts will cover fundamental budgeting topics, but this episode assumes some prior knowledge.

Step 1: Know Your Budget Perfectly

• 🔑 The first step to effective "Race Don't Chase" is to know your budget inside and out – every line, every dime, every month.
• 📊 Managers must understand their costs to have confidence in profitability, as profit is necessary for future customer creation.
• 💰 Every manager, even in cost centers, is obligated to manage costs effectively to contribute to the company's profit and future.
• 📉 Pushing budget authority down to lower levels is crucial; managers without budget control are ineffective.
• 🚫 Avoid "block budgets" where funds are lumped together; line-item budgets offer granular control.
• 🗓️ Sharp managers know their budgets to the penny, understand monthly variations (e.g., working days, holidays), and manage them weekly, not just when problems arise.

The Importance of Budget Reporting and Analysis

• 🔍 Managers must actively obtain and study their budget reports monthly, dedicating specific, non-negotiable time to this analysis.
• 🚀 This sustained effort, akin to climbing Everest step-by-step, is essential for budget success, resisting the temptation of "silver bullets."
• 🛠️ Budgeting is a microcosm of management, requiring sustained effort, continuous improvement, and a focus on what the job requires, not just what is liked.