It’s that time of the year again. When the Federal Government Budget makes the news you know that’s it’s time to start
So what does all this top down, bottom up, stuff really mean, and is a budget supposed to be what you honestly think the results will be for the coming year, or what you want to try to achieve? They say dream big but you don’t want to be one of those organisations where the staff just scoff about the budget because they think it’s absurd – but you don’t want to be pessimistic either.
There is also a lot of merit in the view that budgets are old hat and not so useful in a fast changing world. That’s all well and good if you are using robust continuous forecasting but for most businesses of moderate size, and finance staff resources, the annual budget still forms the bedrock of reporting and forecasting.
My view, for what it’s worth, is that a budget for medium sized firms is usually necessary and it should be your best prediction of the future based on all things going realistically well. Think of the budget as pegs placed in the ground to measure progress against, to measure how circumstances unfold differently from what we envisaged.
Planning for safety, risk, and big harry audacious goals (BHAG), are best done using forecasts once your budget if laid down.
So, top down or bottom up? Meaning estimated demand vs ability to supply. Easy, do both and in the process of trying to make them agree you can test your assumptions.
Don’t try to go into too much detail on small expenses, they should be pretty easy to lump together and estimate. It’s the big items to spend time on, sales, obviously, but also margins and staff costs. Note that those two are the pretty much the same thing if you are a professional services firm.
If you want a hand with your planning or budget hit us up.
Cheers