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B E S T P R A C T I C E S
Top tips for preparing an annual budget Effective budgeters point to goals, terms, assumptions, and a few basic questions as the keys to success when prepping for the new year.
By LIISA ANDREASSEN Correspondent W hen prepping your annual budget, think of it in terms of a roadmap. You have goals that you need to meet and a strategic plan to get there. Your budget should help you to achieve those goals while staying within the parameters of the strate- gic plan. So, where do you begin? Harvard Business Review has a book titled Finance Basics that breaks it down. The book suggests that you start by listing three to ve goals that you hope to achieve during this budget period. Make sure that your goals line up with strategic priorities. Here’s an example of three goals: 1) Increase gross sales by 5 percent. 2) Decrease administrative costs as a percentage of rev- enue by three points. 3) Reduce inventories by 2 percent by the end of the fiscal year. Now what? Figure out how you’ll achieve those goals: How can you generate more revenue? Where can you cut costs or reduce inventories? Some other issues to consider when planning your budget include: Term. Is the budget just for this year, or is it for the next ve years? Most budgets apply only to the up- coming year and are reviewed every month or every quarter.
Assumptions. At its simplest, a budget creates projections by adding assumptions to current data. Look hard at the assumptions you’re making. Ex- plain what you’re basing that assumption on, and show a clear connection to at least one strategic goal. LOOK TO THE PAST, BUT PLAN FOR THE FUTURE. Use last year’s budget as a frame of reference, but don’t look only at speci c revenue or cost line items, because rev- enue and costs are closely linked. Instead, ask your- self what the budget shows about last year’s opera- tions. Adjust accordingly. Perhaps it would make sense to increase your sales projections for specific service lines. Does it make sense to increase your marketing efforts in those areas? To make the deci- sion, you’ll need as much data as you can get about pricing, competitors, new sales channels, and other relevant issues. Alternatively, you might plan to eliminate some services. If an area is performing poorly, does it make sense to cut it or invest more time and mon- ey? Here are a few other questions to ask: Will you keep prices the same, lower them, or raise them? A small price increase might offset last year’s budget sales shortfall. Do you plan to enter new markets, target new clients, or use new sales strategies? How much ad- ditional revenue do you expect these efforts to bring in? How much will these initiatives cost? See BUDGET, page 8
THE ZWEIG LETTER OCTOBER 5, 2015, ISSUE 1122
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