Financial Planning1 min read
Building a Budget You Will Actually Use
Most budgets are prepared once and then forgotten. A few design choices make the difference between a document and a management tool.
By the Meridian advisory team (concept content)
A budget is a plan expressed in numbers. Its real value comes not from preparing it, but from comparing it with actual results throughout the year and asking why the two differ.
Start with what drives the business
Rather than adding a percentage to last year's figures, identify the few factors that drive revenue and cost: number of customers, average order value, staff numbers, rent and key input prices. Build the budget from these drivers so it is easy to update when they change.
Keep it at the right level of detail
A budget with hundreds of lines is rarely reviewed. Group costs into meaningful categories, and only break out detail where it informs a decision.
Review monthly, update quarterly
- Each month, compare actual results with budget and note significant differences.
- Each quarter, update the forecast for the rest of the year based on what you now know.
- Keep the original budget for comparison, so you can see how expectations changed.
A budget that is reviewed regularly becomes a conversation about the business, which is exactly what it should be.
This article is concept content for a fictional advisory firm. It is general information, not professional advice. Any examples are illustrative and do not describe real clients.
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