Annual budget season is something I always dread. Even with a small department, preparing an annual budget can be an excruciating experience. I have worked for companies that have four cycles of review for our departmental budgets and I’ve worked for companies that first submission was all I had to do. I honestly can’t tell you which provided me with more stress.
I am a conservative budget planner. How you prepare a budget for a department or company is how you approach your business goals for the next year. I feel much more relaxed after the budget is completed and I know that I have goals in both revenue and limitations in my expenses. It’s the getting to that point that can cause stress in your life.
Here are a few tips for getting through budget season unscathed.
- Start with your “chart of accounts” and list out expenses for the year. If the expense is a variable expense, look at last year’s total and divide by twelve. That should give you a starting point for a predictable forecast. Before you commit to that number, try to determine if a rate increase from that vendor is in the pipeline.
- When preparing your expenses, look closely at where you exceeded budget in the prior year. Why? If possible, add those overages into next year’s forecast of expenses.
After expenses, it is time to start looking forward for revenue projections. You can’t make predictions without looking at past performance. When forecasting monthly revenue goals for the upcoming year, I ask these questions:
- Did we meet goal last year? If not, Why?
- What percentage of growth from the prior year was forecast? What was the actual? If there is a trend, it can help you prepare your “percent growth over last year” goals.
- What are your targets for next year? Where did they come from?
- Are there any new products/services/options/enhancements/price increases we can expect in the next year? This may increase your revenue goal.
- Are there any new competitors in the marketplace? Anyone that during your SWOT analysis is potentially going to curb growth?
If growth is forecast, it’s time to go back to expenses. As you grow, you’re going to have to spend more. How many employees will you have to add? When will you have to add them? What capital expenses will you incur with new staff?
Preparing an annual budget is a great exercise in “diving deep” into your core business and setting milestones and expectations. Since I am not a finance person, I spend budget season being cranky and aggressive. I am usually pleased with the end result but, I dont’ want to even open Excel for a long time after my budget is approved.
If you are preparing a budget for the first time, ask for a template. Most companies provide spreadsheets with formulas already in place. If not, sit down with your company’s finance person and get a tutorial. Preparing a budget is not the place to “fake it ’til you make it.”
Good luck! I hope you get all the expenses you want (especially travel and new employees!) and are confident that you’ll hit revenue targets. Better yet, exceed them a few times to show the boss that even though you can’t do basic math, you can still be a rock star.
If you have questions about this topic or other business questions, email me at the address in the top left box.
