Its Budget Time!

The goal of a budget is to realistically create a picture of the short term (1 year) expected revenue and expenses of an organization. When taking a round of expansion capital or planning for next year, it is essential to create a budget that lays out how you will use those capital resources and sets a stake in the ground for key internal and external stakeholders. You also should look at a budget as a guide to managing your business and operating units and not simply a random series of numbers to satisfy your venture capital investors.

Key things to focus on when creating a budget:

Start Bottoms Up – Make a determination of what revenue generating expenses will be incurred and calculate the expected ROI that will be achieved. Understanding the productivity ramp of sales reps and marketing ROI will be key.

Shine a spotlight on any key assumptions in your model – They key economic levers in your model should be clearly visible and able to be manipulated to show the impact in various scenarios. Don’t hide them or make them difficult to be found. They should be in your face!

Keep it simple – Creating a budget model that is overly complex and difficult to use will cause you to loose the value of the model. It will also inhibit senior management from being able to engage with the model and understand the key components. Make it user friendly while still keeping the sophistication of the behind the scenes assumptions.

Hopefully the above will help as you are going through the budget process.

K