Budgeting is always a stressful process; having to make certain decisions and assumptions that will guide your activities for the next year can be a bit daunting. Budget planning can be a time of reflection and excitement for things to come, but only if you do your homework and do it right.
First, you never want to start by diving straight into the numbers. Review of your financial reports should be done on an ongoing basis, giving you an idea of where you stand, along with identifying what hinders your profitability and where your strengths lie. With these items identified you want to address the following with your senior management team:
- Strategize in terms of short-term and long-term goals
- Discuss your assumptions of the business environment for the upcoming year
- Review bottlenecks constraining the company in meeting objectives (sales, dues, fees, other sources of revenue) and identify their impact. Brainstorm solutions around the bottlenecks for both internal and external forces
- Talk departmental/program objectives and strategy, and make sure these fall in line with the overall strategy. This is especially important if you leave the department/program heads to develop their strategy separately from the group
After discussing the above items with your management team it is time to start looking at the revenue and expenses such as revenue forecast, capital expenses, staffing changes, etc. for the upcoming year. To tackle the budget preparation, many of our clients find it helpful to look at the trends of the actuals over a 3 to 5 year period and pair it with the decisions from their strategizing discussion to create a draft budget for the next year.
After you have a draft of the budget go back and review it from the perspective of reasonableness and achievability. You do not want to set unrealistic expectations, but you also do not want to be too conservative with your approach. Look for a more moderate place on the spectrum between the two, where that place is on the spectrum will depend on where your company/organization is in its cycle – start up, growing, or mature. Review one last time making any necessary changes.
Written by Rally Kamenova