Estimated reading time: 2 minutes
Unfortunately, the annual budgeting process is often viewed with dread. It can be a tedious time-consuming project. Your budget should not be filed-away and forgotten. It should be more useful than just a comparison to your actual results. It doesn’t have to be that way. The budget should be the game-plan for your company to achieve its goals. The budget along with a long-term forecast can be used to anticipate your company’s future resource needs. Here are a few tips to help:
- Prepare your company’s goals first. Prepare detailed goals for the budget year, and more general goals for the extended forecasted periods. Traveling without a destination is just wandering.
- Don’t budget in a vacuum. Compare future budgeted and forecasted results with current-year trends to be sure they make sense. If there are apparent disconnects, identify, investigate and document why they are reasonable.
- Prepare a long-term forecast (2 – 3 years) along with the budget. While you are going through the budget exercise is a good time to consider how activities might continue over the next few years. This will also give you a head-start on next year’s budget.
- Budget for Success! Identify all activities that are required for your company to meet its goals, and be sure they are included in the budget. Revise your goals if they can’t reasonably be met with available resources.
- Involve your team. Involve the project manager or multi-functional project team in the budgeting process. Vet all timing assumptions and cost estimates carefully with those who will be responsible for attainment.
- Identify all fixed costs. Some examples are contractual obligations such as leases, license agreements, purchase obligations and equipment service agreements.
- Identify future staffing changes. Estimate future staffing additions, whether employee or contractor. If staffing reductions may be necessary, estimate the timing and effect on future costs.
- Budget for changes in working capital. This can have a significant effect on your company’s cash forecast. Some of the more significant things to consider might be timing of employee bonus payments, payment of corporate insurance policy premiums, payment of equipment service agreements and planned capital improvements.
- Use a tool. There are a number of good ones available today. One option to consider is the Life-Science Budget Model.