David Sullivan's picture

Getting your Budget Complete

This is about two weeks after the time each year that budgets should be completed
for your company. Here’s the process I like to follow in putting together my budget:

1 – Timing: I always wait until January is closed before I begin to finalize the budget
for the year. In most companies the numbers from December and January are
almost never normal. With the holidays at the end of the year it seems to take a few
weeks for companies to refocus and prepare for the coming year. 

2 – Expenses: Expenses should be categorized into two buckets: Fixed and Variable.
Fixed expenses include rent, telephone, car and lease payments, and others that are
known on a monthly basis and don’t react to fluctuation in sales. Variable expenses
include commissions, lead costs, shipping, and others that are directly related
sales volume. A careful analysis of the expenses should be done in order to gain an understanding and insight into your company. All of your expenses should be in
either of those two buckets. If additional expenses are anticipated for growth, you
should treat these as capital costs and include them in a separate Business Dashboard analysis.

3 – Sales: The old rule of thumb was to take whatever your VP of sales said and cut
it in half. Depending on who that is you may still do that. I think that last year was
the bottom for most established small businesses that have survived the recession.
I would forecast a small increase in sales over last year to reflect increased buying
power; any other increases need to be related to securing additional market
share or reaching out to a new customer base. Again, as with the expenses those
projections should be looked as on a per project basis, which can later be rolled into
the budget.

I recognize that many of my associates feel like budgeting toward the end of the
year makes sense (“The Need For Budgeting; ‘Tis the Season—Budget 2011…”), but
I’ve always found that it’s more relevant and meaningful when I get it done at the
beginning of the current year.

Filed under: