Six Guidelines for Better Budgeting. Start Now!

Sep 19, 2023 | Financial, Growth Tips, Income, Peer Groups, Planning, Productivity, Strategy

Budget season comes earlier than you think. It starts now.

You need to budget early for a few reasons:

  • It confirms your pricing for next year.
  • It brings clarity to big investments.
  • It forces you to get next year’s goals figured out now.

The budgeting process should “ideally” start at the end of Q3 (September) after you have 8 months of current year actuals.

Here are six critical guidelines.

1. Budgeting starts with goals.

Start at the top, setting your vision and major goals.

Your strategy then follows your goals. The budget then underpins your strategy.

Budgeting however can be bottom up.

  • Conduct an analysis of your current year actuals; represented as a percent of revenue.
  • Compare actuals to budget and prior year. Trailing 12 months is helpful since you are starting this mid-year.
  • Analyze by branch / division.
  • Look for major discrepancies and understand the causes for these discrepancies – both positive and negative. (e.g., if materials look off, has everything been allocated from inventory? Are receipts and payables entered up to date?)
  • Your thorough review may lead to reforecasting the current year, so you have an accurate look.

2. Compare your data to benchmarks.

If you are a client or participate in our Financial Master Class, you have access to the best benchmarks in the industry.

How do you stack up to your peers? Use this data and your own long-term vision to decide on your goals for 2024.

Our friend and client Will Seiler, Owner of Seiler’s Landscaping in Cincinnati, told us that when he is working on his budget, he copies the benchmarking data side by side with his budget.

Benchmarking serves as a reality check.

3. Test Your Assumptions

Profit grows with increased revenue, increased throughput, and improved efficiencies.

When you budget for growth, what are the strategies you will put in place to achieve your growth goals? Increased marketing? Better talent? More equipment?

Are there services that make no sense based on weak financial performance?

We have many clients who have eliminated one service and ended up with higher revenue, profits, and joy.

As you start to test these critical assumptions, start plugging them into your budget.

4. Three years of data.

We recommend having at least 3 years of reliable financial data while planning, broken out by division and by month.

5. Closing the books early helps.

Close your August books quickly so you can start the budgeting process timely.

In fact, close every month within 7-10 days.

Don’t let clunky systems, or your teams or vendors bad habits hold you back!

Otherwise, every month your leadership is looking at old data, making slow decisions.

Speed wins!

Your challenge: Build your budget with your team

You must have justifications for the numbers in your budget. If you’re budgeting for a 5% increase in gross margin, the justifications need to stand up to scrutiny.

Involve your leadership team and managers. Get their buy in.

A Sixth Guideline: Have every budget leader (someone who owns a budget, division or department) present their justifications to the team and have a healthy debate before locking in next year’s numbers.

Ready, set, debate!

Regards, Jeffrey Scott and Mitch Katz

P.S. If your vision includes building branches, sign up for our Nov 1 virtual event with our early bird discount.

Email us about our “4 for 3” ticket special!