10 dos and don'ts of budgeting in business
29th January 2016
It would be great to have the money to do the thing you want, when you want. Unfortunately many do not have this luxury, and those that do quickly find that wild spending is unsustainable. A realistic budget will ensure that your projections are more or less correct, and forecasts are based on a reliable source. Budgets differ depending on business size and the number of overheads that require management. We've broken down a few budget variables that to consider into each stage of business development to give you an insight into how your involvement may evolve through the years.
Small business - up to 50 employees
- DO consider the calendar year when putting together your first budget. If you're new to budgeting in a small business, schedule the final budget report for October or November with a board or December without a board so any tweaks and finalisations can be made for the next fiscal year in April.
- DON'T create a financial model without projections. Stay conservative and cautious when handling the budget. Expect several changes to your revenue model in the first few years.
- DO assess and be realistic with key business metrics that you able to execute over the course of the year. Expect to conduct a reforecast over a 12 month period to evaluate the budget and actual revenue streams.
Growing business - 50 to 100 employees
- DO choose to employ a CFO or a vice president of finance to manage your growing budgetary requirements. This in itself will need to be assessed based on your long-term finance model. Although some businesses will lump the two job titles into the same vacancy, you should consider whether the businesses will be financed privately or maintained as an independent company before going public as a CFO position would be better suited to the former.
- DON'T miss out your key people when discussing the budget. Heads of sales teams and a head of engineering or tech should also be included in preliminary discussions and any follow up meetings.
- DO note down the three fundamental ingredients of budgeting at this scale: comprehensive budget model, a cost model that includes headcount, and finally a list of key performance indicators (KPIs) that will evaluate current success. Any sales forecast that is estimated by your head of sales should be scaled back slightly from optimistic to realistic.
Large business - 100+ employees
- You're likely to have a CFO and CEO and a large tiered network of staff. DO include your entire senior team in the budgeting process because each member will have control over a meaningful sub team or service. All need to be involved on some level to drive KPIs to link revenue and cost budgets.
- A large business usually has revenue streams from a number of sources. DO create detailed revenue assessment and forecast which considers each revenue stream and how each may influence the budget and future growth.
- DON'T forget to benchmark your numbers against your competitors in your sector - if you have business dealings with privately held companies, gathering a substantial amount of data can prove difficult. Analyse what others are spending as a percent of revenues to produce a set of up-to-date industry guidelines for your own company.
- Finally, DO share key metrics and line items with the entire company so that delivery and expectations are aligned. This will also make monthly reporting tracking against the budget a lot easier.
For an in-depth discussion about your career path in the finance industry, please contact Nigel Jeyes on 01273 229499 or email firstname.lastname@example.org.