When a crisis event first affects your business, an important step is to develop or revise your budget for the business. Budgets are the expected future activities of a business, measured in financial terms. They are a kind of financial summary of all anticipated plans and actions for the business such as marketing, staffing, human resources and operations.

There are essentially two types of budget:

• Cash flow budget
• Profit and loss budget.

The cash flow budget estimates the future income and expenditure of the business, revealing any periods where it may fall short of cash.

Because cash is the life blood of a business and cash flow is critical to survival, the cash flow budget is the most useful operational budget for a tourism emergency. It is also the most commonly requested budget when seeking finance from a bank or another financier.

By developing cash flow projections for several months in advance, you can estimate when the business will be short of money and take appropriate steps beforehand.

Irrespective of the nature and duration of the tourism emergency, it is recommended that you prepare, and continue to monitor, an emergency management cash flow budget using the following steps as a guide. Find a cash flow budget template in the Resources section.

Step 1

Decide on the timeframe that the emergency might have a significant impact on your cash flow. This might be weekly, fortnightly or monthly.

Step 2

Estimate the number of customers or sales units (for each of your areas of income – e.g. meals, tours, accommodation, equipment hire) you could expect to attract/sell for a weekly, fortnightly or monthly forecast period. Find an Estimates to Assist with Cash Flow Budget table in the Resources section.

Step 3

Multiply the customers/sales units by the actual (or average) price of each unit, to give the likely sales income.

Step 4

Calculate when this sales income will actually be paid to the business’ account, taking into account any deposits, cash payments, credit card payments, etc.

Step 5

Identify and add up all the expenses that must be paid in each week/fortnight/month. Separate the expenditure into fixed costs (those that will occur regardless of your situation) and variable costs (those that are linked to the number of sales).

Step 6

Calculate the surplusor deficit for the week/fortnight/month.
If there is a deficit, consider whether it can be covered by any cash you have on hand, or by an overdraft or other credit facility.

“While business is sound and going through good times, put in place financial arrangements to help you in the case of an emergency. Don’t wait until the emergency has struck and then go begging to the bank for money. Set up overdrafts, etc. when your business is in a positive growth cycle. This way you’ll get a much more satisfactory arrangement.”
Alan Hall, Loch Sport Marina Hotel
The hotel experienced a downturn after the 2006-07 bushfires in Gippsland, followed by floods in June 2007 and a blue-green algae outbreak in the summer of 2007-08.

Step 7

Review the number of sales units.
Is there enough time to establish marketing strategies to increase sales with special offers or add-ons? Add in any extra units you could expect to sell, and recalculate Steps 2-6.

“It’s important to keep advertising your business after a crisis. Don’t stop marketing just because your cash flow is impaired.”
Don Calvert, Mountain Grand Guesthouse, Halls Gap

Step 8

Review when the sales income is likely to be received into the business.
Are there any opportunities to increase income during the emergency projection period by paying incentives for cash payments, or by temporarily reducing the normal payment terms? Add in any changes to the timing of when income is to be received, and recalculate Steps 4-6.

Step 9

Look at each expense item and ask whether any expenses could be deferred, reduced or avoided altogether without impacting on your business’ reputation or future sales.
The separated fixed and variable costs will make it easier to look for potential savings because the fixed costs will tend to be relatively constant amounts, paid at regular intervals irrespective of sales income, while the variable cost will be linked to the sales income for the period. Deduct any changes to expenses and recalculate Steps 5-6.

Step 10

When a satisfactory and manageable result is obtained, finalise and print out the budget.
Find a cash flow budget in the Resources section.

FIGURE 2: Crisis Management Cash Flow Budget Steps