Naturally, this involves some estimates and won’t be perfect.įor startups that aren’t yet profitable (or don’t have paying customers at all), you’ll be spending investor capital or venture debt. How much money are you making gross? List your core products, their pricing, and the expected volumes for each in the coming year. This will involve other costs, of course, but we’ll come to these next.Īt the company level, you need to identify income streams. The most obvious starting point for any budgeting exercise is to figure out how much you have to spend. As we’ll see, the best budgets are collaborative, and you need to know how well the previous budget worked for everyone affected. You should do this at a high level for the entire company, and you should also encourage individual budget managers (if you have them) to do the same for their own scopes.Īlso critical in this step is to consult other team leaders. Was the budget easy to enforce? Did team members follow it? Were there unexpected hurdles or shortfalls, and what caused these? Were your assumptions about the industry and your own growth accurate? And in this case, the best evidence for how your new budget should play out is the previous one.ĭid you spend more or less than anticipated? The starting point should always be to look over the existing information you have to hand. Let’s take a closer look at each in turn. But to guide you through the process, here are eight important steps to follow: There is probably no one “right way” to create a business budget. Finance will learn more about other teams’ priorities, and then can offer structured guidance.Ĭlearly, the biggest upside is that budgets give companies more control and visibility over spending. This is an integrated process that requires input from all over the company.

It connects finance teams with the rest of the business. While this should be encouraged, your budget gives you firm numbers to keep expectations in check. Individuals will always have exciting ideas and campaigns they want to run. The budget gives them global guidelines for this, and involving them in the budgeting process makes this possible earlier. It’s likely that your teams set their own deadlines and timeframes to a certain extent. They’ll also want to see that you’ve made and followed budgets in the past. If you’re asking venture capital firms or a bank for more money, they’re going to want to know how you’ll spend it. Your budget sets targets for costs and revenues, which helps other teams tailor their work to achieve them. It helps to set clear targets and expectations. So a clear cash flow plan that all teams can follow is essential.īut beyond simply ensuring the business sustains, there are several great reasons to cherish your budgeting process: The importance of business budgetingĪt their most basic, the benefits of budgeting are fairly obvious: if the business runs out of money, the business can’t survive. You’ve set priorities and goals for the company in the coming year, and the budget allocates financial resources to achieving these. Think of your budget as putting your business plan into action. When done well, the process involves input from senior management, your finance team, and budget managers across the organization. It involves reviewing past budgets, identifying and forecasting revenue for the coming period, and assigning amounts to spend on a company’s various costs. The budgeting process lets an organization plan and prepare its budgets for a set period.

Budget system