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Time to Start Budgeting

I know this sounds crazy, but if you are a finance professional in a company – whether publicly traded or not - now is the time to start budgeting. Summer just started, and most people are looking forward to vacations, outdoor BBQs, and if you are lucky, Friday afternoons off work. But for those of us in finance, this is the time when we start thinking about budget season. In my former corporate life running FP&A, my team and I kicked off the budgeting process in July. We wanted our budget approved by January 1 and considered it a personal embarrassment if it dragged too far into the first quarter.

While things don’t really heat up until later in the year, there are five budget-related tasks to get started now to ease your load come fall.

1. Get Organized – Now is the time to think about what went well the previous year and what could be better. Hold a post-mortem with the finance team and get some feedback from the business leaders. By starting now, you will leave yourself time to make improvements to the process.

2. Take a First Look – The first budgeting step is always a top-down view of the P&L and balance sheet. With a few key metrics (like revenue growth and productivity, return on equity, or earnings per share), you can get a sense of the challenge ahead. Put an ideal P&L scenario on paper and get it in front of the CEO and executive team now. This prompts them to start thinking about the actions they will need to take next year while lying on the beach this July or August.

3. Publish a Calendar – Ideally, your board of directors, owners, or investors approve the corporate budget and related incentive plans in their 4th quarter meeting, typically held in mid-December. The materials for this meeting need to be completed and approved a week or two prior. Get out a calendar and plan backward from there. The first thing you will see is Thanksgiving. Realistically nothing gets done that week…hence the July start. It is already too late if you start thinking about your budget the week after Labor Day. Publish a budget calendar now for everyone involved in the process. This allows your colleagues to do some resource planning and they will appreciate the heads up.

4. Get Ahead of Allocations – Most large companies have allocated expenses. In an inflationary environment, costs will absolutely increase. You cannot surprise your P&L leaders with a large increase in allocations in October. If you do, your process will lose all credibility. Provide some guidance to your product leaders and sales teams so that they can get focused on their P&Ls and consider passing along costs with increases in price.

5. Build Your Tools – After your post-mortem, you will have a list of small projects that will make the budgeting process better. July and August are the perfect time to do that work. Maybe you use bottom-up templates, whether in Excel or a budgeting tool that need to be updated. Finish those projects now so that you have time for user testing and feedback and are ready to go in September.

Are you convinced? The business leaders own the budget, but the finance team owns the process. Build credibility by giving yourself enough time to run a quality budget process. And if you need help, feel free to reach out. Have a great summer!


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