That time of the year again: Let’s create the budget.

Many people in business face the same undoubted task at the end of the year: create your budget for the next year. Normally this fate comes with the same question: What shall I put in the budget that:

  1. will show my vision to achieve the business strategy?
  2. fulfil the business’ needs (current and future)?
  3. will make it credible, achievable and most importantly, will make financial sense so the board approves it?

I will try to give you some ideas. While it is not a complete check-list I hope will help you prepare for it properly:

Will I know how to do it?

Nervous about your budget? Don’t be. It is all about common sense. If you have the responsibility in your organization to put a budget together it will be due to your ability to think and progress in circumstances that other people have not been capable to surpass. A budget is nothing but an exercise of putting your thoughts and concepts for the future into financial language. Surely this is not the worst experience that you have encountered, so don’t panic.

Why do you want a budget?

It may seem a simple silly question to begin with. However, if you don’t know why you are required a budget chances are that you will get it wrong. Is it because you just want to cover for what you have in your unit? Is it because your company needs to achieve XYZ target in a year’s time so you have to fulfil those priorities? Is it because you have a strategic plan for the next 3 – 5 years and you need to shape it? Think and scope why you need a budget before you start putting numbers together. Planning, like in anything you want to succeed, is paramount.

Temptations – Word of caution

As you will be creating the budget you may be tempted to “chip in” some items that you have been longing for some time but never saw the chance to include or never had the money for. Examples of things that people usually add hoping that will pass the filter are:

  • Unclear training (i.e. money which will be used in reality for unspeakable purposes)
  • Equipment nice to have, totally unneeded, but you don’t want anybody to know about.
  • Or, the worst of all, manipulate the budget in a way that serves your particular meanings (whether personal or professional) in detriment to other departments (interdepartmental wars, play politics,… the list is endless).

My recommendation: Don’t do it, furthermore, don’t even think about it. Not only is it unprofessional but, should you be caught in the act of “dodging” your budget, your reputation will vanish and, probably, you may even lose your job.

Always be honest and truthful to the position you hold and to those that put you in it. You are there because you are trusted. If trust is lost everything is lost.

Get historical data and knowledge

If you are new to the position it is important that you try to collect what was budgeted for last year, the gaps that you may have encountered and the history of it. By the time of putting a budget together you should have spent enough time not only with your peers (Business Units owners, other managers and business stakeholders) but also with the “low rank” people in your business to have a real vision of what is needed. That will give you a better understanding of where you were as a business previously, where you are at and where the business wants to go. Without this information don’t bother to do anything: you will not succeed.

How realistic is it?

Now you have put some numbers together but, does it make sense? Maybe including the latest technology which may not be needed or trying to bridge all the gaps in one go will result in an absolute failure. Think laterally. It is better to take small steps than rather trying to do everything at once. Set up small goals that, once achieved, will develop into a conditional budget or plan B and explain this to the board. Having all in one budget may be challenging for them to approve and unachievable for you and your team. If you are going for the “step approach budget” I recommend that, alongside, you prepare a business case explaining the sequence and goals that you are planning to meet and how this will cascade into subfolding budgets.

One budget does not fit it all

If you feel uncomfortable with your budget create different scenarios as you see them: realistic, pessimistic and optimistic (depending on the business you are in). That will give you some food for thought and surely you will come with the right approach at the end. It is also a good idea to share those with you n+1: you will be surprised that, in most cases, you did your homework rightly and only minor adjustments are needed down the line (as far as the business is concerned).

Check your budget with a peer

Before you submit the final budget it is always wise to have another pair of eyes reviewing it in case you either forgot something, introduce something you shouldn’t or simply the budget is not what is expected. Some IT experts at exec level are very good in technology but have a gap on other areas, like accounting. Have your colleagues in finance check your numbers with you just in case.

Expect the unexpected

You are creating a budget to the best of your knowledge with the information you have in hand; you don’t have a crystal ball so nobody is asking you to predict the future. If the situation changes during the year and corrections in the budget have to be made I am sure that will not be a problem as you are supporting the business: they are the reason for the change and that is why you are here for (This is, obviously, if you have applied the previous point on “keeping a realistic budget”).

Final tip

Creating a budget is like telling a story: it has to have some meaning. When I look into a budget I have to feel that it is telling me something, “it must have a flow” from beginning to end. The budget has to speak by itself…if it doesn’t then redo it again. Experience tells me that, if numbers don’t talk by themselves, the budget will not convince anyone.

Something to always keep in mind: You are presenting a budget because you want to persuade someone to spend their money on something that you are planning. If you don’t know how to “tell and sell” your story you will not get the needed funding. The board will think that they’d better spend their money on something else more worth it …and the budget is your script of the story called “My Vision for Next Year”.


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