Don’t wait until December

Raise your hand if you woke up this morning eager to start working on your 2014 budget. Anyone?

There’s just something about the word “budget” that renders people completely uninspired. It’s not an overtly strategic word; certainly not enough to gain popularity or drive creativity. But annually, perhaps as early as today, you are responsible for making sure your financial planning for the upcoming year is in the works.

You may wonder why now is a better time than ever to begin the 2014 budgeting process. If you’re looking for a more collaborative and productive approach to budgeting, consider a two- to four-hour brainstorming and planning session with your senior staff or team leaders. You’ll want to give your organization plenty of time between your session and the end of the year to formalize your business plan and begin integrating any new budgeting models into your operations. Do not forget to invite your CFO — he or she is instrumental in contributing to your financial plan, comparing your results to prior years, and providing valuable insights into financial projections using the new budget.

As you build your budget skeleton, consider the following major components:

• Cash flows. Be sure to roll today’s cash, bank loans, and lines of credit into the future to keep track of your debt covenants.
   
• Monthly tracking. Annual budgets are a start, but if you’re serious about holding yourself accountable and understanding the cyclicality of your business, creating an annual budget by month is necessary.
   
• Assumptions should back your revenue. Will the revenue require marketing initiatives that you need to start? Will you realistically be able to raise your prices in the market?
   
• Categorization. Operating expenses are easier to budget if you break them down into categories, i.e. compensation and benefits, marketing, facilities, and corporate expenses.

Another important thing to note is that accountabilities don’t start and stop with creating the budget. Make sure you set up a system for next year where you can compare your actual results with what you planned for in the budget. Don’t be discouraged if you discover early in the year that your budget is out of date due to a large contract or a new hire you didn’t plan on in months’ prior. (HINT: Your budget skeleton should include functionality to be converted into your forecast starting soon!)

Nothing beats going into the new year with your budget complete and the process behind you. Good luck!