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How To Run an Effective Budgeting Process in 11 Steps

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This blog was first published in 2021 and updated on February 24, 2023.

As we roll through the beautiful days of autumn, it's hard to believe that our year is almost nearing its end. With the last quarter of the year upon us, it's time to push the annual budgeting cycle full steam ahead. Are you ready to complete your budget for next fiscal year?

If the answer is yes, then, you should look to operationalize the early stages of your planning cycle to ensure you are ready for your annual kick-off first thing in the new fiscal year. In this blog, we're going to highlight 11 key steps you should take to run an effective budgeting process for your business.

1. Assess Current Year-to-Date Performance

In order to accurately assess your future potential, you need to ensure you have a strong understanding of the overall operations of your business. For example, what does your say:do ratio look like? Did your business lay out operational plans and corresponding KPIs/metrics and achieve them in the first half of the year? Did you under or over achieve goals? Why?

Once you have this context, you should be in a good position to inform future forecasts and financial targets. Remember, your forecast and budget is just the articulation of your operational and strategic plan, so always anchor in on who, what, where, when and why you are doing things within the business and your financial guidance should logically flow from there. 

2. Re-Examine Your Long-Range Plan

Leverage your long-range plan (LRP), also referred to as a target operating model (TOM), by syncing with your CFO and CEO in order to be able to provide guidance to the rest of your executive team. You will want to ensure there are no fundamental changes in your business strategy and that the high-level guidance realistically reflects the growth rates of the company as well as the corresponding investment levels. 

3. Update Your 18-Month Forecast (2H Current Year + Next Fiscal Year) 

Update your 2H forecast and extend through next year from a bottom-up perspective. Examine any gaps between the bottom-up plan and your long-range plan. There will likely be some natural tension in your system when this occurs. If you are optimizing your business, leaders should be encouraged to drive optimal outcomes with the investments being placed within your organizations. Our job in FP&A is to act as a natural moderator or check point between the needs of the company and its investors and what is logically achievable within the business.



4. Summarize Your Plan and Go "Sell" It to the Board 

Summarize proposed targets and present them to your board of directors. It would be a shame to go through a very detailed planning cycle to ultimately roll up your plan and not have the support of your most important stakeholders (your board, likely also your largest investors if you are a privately held company).

5. Finalize Your Detailed Planning 

Complete your detailed planning with approximately three to four months left in your fiscal year. This will allow you enough time to incorporate any feedback that you've received from your board of directors into your plan. Hopefully this is a very light exercise given the regular interlock with your board regarding your long-range plan, but in case it's not, you won't be in a bind.

6. Plan To Grow by Product, Segment and Region 

As you finalize your detailed plan, consider where your growth will come from and how it will be achieved. Are you pursuing new channels, developing new products or contemplating new commercialization models? If so, ensure each of those components are reflected in your plan. It might mean you have slightly different dynamics than what you see in your regular day-to-day results, but it's a great opportunity to tune your metrics and consider areas to drive your business forward in leap functions versus in a linear fashion. This means planning all of your functions in a holistic manner, whether it's how marketing will help the business build demand and go-to-market or how a G&A function will ensure the right infrastructure is in place to set the business up for success.

7. Update Commission Plans (Including Plan Provisions) 

Update your commission and compensation plans to ensure the general philosophies support the ongoing strategy of the business. This should be an exercise that aims to align the corporate strategy, operational plans and the incentivization of your team members. The more you can align the interests of all parties, the greater the chance that everyone will be marching in the same direction.

Once your plan provisions are set, either your FP&A team (or often an Ops team) should be picking up the detailed quota planning for the year.

8. Q4 Plan Review

In the final month of the year, update your forecast for the year as a gut check against your budget. In the event that nothing has materially changed since your board meeting, you can likely proceed as is. If there are major changes to the trajectory or performance of your business, this is a good chance to make any necessary adjustments in advance of kicking off your fiscal year.  

9. Distribute Finalized Budgets to the Business 

A major part of the budgeting process is communication to stakeholders, ensuring  all parties are brought into the plan. To do so, make sure there is a formalized communication of the finalized budget to all budget holders. This will establish that everyone is working off of the same plan and that there is no opportunity for misunderstandings.  

10. Annual Kick-Off 

It's time to celebrate! Share your goals, operational plans and the annual budget with the entire company. By planning earlier, reviewing your assumptions often and engaging the business regularly, your annual kick-off should not only be a message that is fun to deliver, it should resonate with everyone. 

11. Make Budgeting an Agile, Ongoing Process 

Forecasting season never really ends. You should be reviewing your forecast and plans on a monthly, quarterly and annual basis to help drive your Plan To Growâ„¢, comparing your actuals against your plan to drive an agile approach to business planning.

Check out The Ultimate Guide to Budgeting and Forecasting to help you better  formulate strategies, plan for the future and align your company's goals.

Tips and Reminders

The budgeting process is hard work and there will likely be challenges along the way considering timeframes and all of the variables at play. So focus on the big picture, lay out a plan that makes sense and acknowledge that course corrections will need to occur along the way. Your goal should be to roll out a plan that is directionally correct and that helps better inform investment decisions. It's often in our nature to focus on all of the details (which isn't necessarily a bad thing), however, you need to make sure enough time and effort are spent on the items that move the needle, so ensure you prioritize accordingly.  


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About the Author

Tom Seegmiller, Vice President, FP&A, Vena

As Vice President, FP&A at Vena, Tom Seegmiller is responsible for strategic finance, including business partnering, budgeting and forecasting, with a focus on optimizing enterprise value. Tom is instrumental in the formulation of the financial narrative for the executive leadership team, investors and board members. Tom has always had a focus on driving enhanced business decisions through leveraging financial and operational data. He is an experienced finance executive, having most recently led the finance team at Miovision Technologies. Prior to that, he was in senior FP&A leadership roles at OpenText. Tom enjoys golfing, skiing, exercising and traveling in his spare time, but most importantly, he loves spending time with his wife and daughter.

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