[Tool]Trigger Point Budget

Trigger Point Budgeting is a simple tool that I’ve been using with clients for over 20 years. If you refer to the Coronavirus model we’ve discussed previously, your model is going to be around Surviving, Adapting and Thriving.

The Trigger Point Budget tool sits into the “Survival Phase” and is about the money you collect and about cash that you spend. Even if your business is going well now, I would suggest you use this tool now because we don’t know what changes are going to be ahead for us.

trigger point

To determine your “trigger points”, understand the current cash costs of operating your business. Calculate a point where cash income starts to get close to your costs (see Decision Point #1 on the image), This is the income level where you will need to make decisions and implement actions that will reduce your costs. These could include: access to Government support programs, debt management, changing staffing levels, reducing services, etc.

Implementing actions at Decision Point#1 will reduce your costs and give your business “breathing space”. Calculate the next point where income starts to get close to costs again – this is Decision Point#2. Determine the actions that you need to take at this point to reduce costs and continue for other trigger points.

What this tool does is driving you to make decisions in the cold light of day rather than in the heat of chaos where poor decisions are often made. It’s about making decisions NOW and then when your income gets to a Decision Point level, you can ask yourself—what actions did we say we’re going take? Which of those are still relevant? Which ones can we put in place? Are there any additional ones we should be taking now?

The model shown here is not about a specific timeframes – it’s more for illustration purposes. The slope of the curve could be very steep and/or you could jump from Decision Point #1 straight past Decision Point#2 to Decision Point #3 quickly so it’s important that you think through what the potential options are NOW and at what point you’re going to need to do to make some changes.

The Next Steps

I hope you’re staying safe and that you’re managing to deal with COVID19.



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