Creating a budget to keep your business growing is an important part of developing best practices to measure, enhance, and protect to keep your business growing. This allows you to design a road map for your business. Whether your business is large or small, a yearly budget provides information to other key leaders. DHJJ has helped many businesses design their budgets. Below are a few basic steps to creating a budget for your optimal business growth.
Step 1.
Create a template – Create an Excel worksheet and simply enter the actual income statement results for the last 3 years. If this is your first budget, keep it simple. Add a column for next year’s budgeted amounts either by month or annualized. This column should be right next to the prior year actual results. You will easily see the trends of various line items. This will be helpful when creating next year’s budget numbers.
Step 2.
Revenue budget – This is the most important step in the process and I recommend you spend most of your time in this area. Results are driven by revenue activity and the revenue budget will be the driver of most expenses. I recommend the following:
- Use your historical revenue information and combine it with current market trends and business plans.
- Meet with your business development team and get input from them on their expectations for the upcoming year. Ask them what they are hearing from their customers and from the trade organizations. Digest and process this information to come up with next year’s revenue budget amount.
You can stop the revenue budget process right here, but we recommend that you take it further. Breakout your revenue budget on at least one other level. You can “slice and dice” the revenue budget by month, by sales rep, by product line, by client, by location, etc. The more you breakdown the revenue budget, the easier to understand where the issues are if you miss the budget. The additional revenue detail can help provide accountability for the individual(s) responsible for the revenue results. We recommend a separate tab in Excel for the revenue budget detail. The information in this tab can be linked to the appropriate Revenue line on the income statement prepared in Step 1.
Step 3.
Payroll forecast – Set up a payroll tab in Excel and lay out the historical payroll information for your company. Break out departments such as officer, sales, administrative. Once the prior year information is entered, start to discuss staffing needs for the upcoming year. Discuss raises and bonuses, new hires, terminations, retirements. Add expenses for all payroll related expenses such as payroll tax, workers’ compensation, health insurance, 401k match, etc. This worksheet can be linked to the income statement template in step one.
Step 4.
Operating expenses – The hard work is done. Its downhill from here! Operating expenses generally can be determined by the prior year numbers. Adjust them for inflation, new hires, increased or decreased activity, etc. Your rent, internet, telephone and other like expenses should not change too much year over year. This information can be entered directly in the income statement template you created in the Step 1.
Once you have the first draft of your budget complete, make sure to review it for accuracy. Once you have information in an Excel spreadsheet, you are able to “play” with it by changing revenues or setting up “what if” scenarios.
The budget process is as important as the actual budget itself. Going through this process will provide you with valuable insight into the inner workings of your business, insight that you can use to better manage your business. You will begin to notice patterns that will help your firm stick to its overall strategy, while creating a sustainable business model.
How DHJJ Can Help Create a Budget to Keep Your Business Growing
DHJJ has experience with helping companies create and sustain their budgets for business growth. If you would like help creating a budget to keep your business growing, please call us at 630-420-1360.
