How to create and manage budgets that drive business growth
Build financial planning processes that align resources with strategic priorities, enable data-driven decisions, and create accountability. Move from reactive spending to proactive investment in growth.
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0 of 8 steps completedStep-by-Step Instructions
1 Step 1: Establish budget philosophy and priorities
Step 1: Establish budget philosophy and priorities
Define your budgeting approach: zero-based (justify every dollar), incremental (base on prior year), driver-based (tied to metrics), or activity-based (by project). Align budget priorities with strategic goals. Determine investment vs. cost-cutting balance. Get leadership agreement on principles.
The Lean CFO by Andy Kaufman
Guide to building effective financial planning processes
2 Step 2: Gather historical data and build forecasts
Step 2: Gather historical data and build forecasts
Analyze past spending patterns by category, department, and project. Identify trends, seasonality, and anomalies. Build revenue forecasts based on sales pipeline and market conditions. Create expense forecasts incorporating known changes (new hires, contract renewals, growth investments).
3 Step 3: Engage stakeholders in bottom-up planning
Step 3: Engage stakeholders in bottom-up planning
Have each department submit budget requests with business cases: what they need, why, expected outcomes, and alternatives considered. Review requests for strategic alignment and ROI. Challenge assumptions. Consolidate requests into preliminary company-wide budget.
4 Step 4: Create scenarios and model trade-offs
Step 4: Create scenarios and model trade-offs
Build multiple budget scenarios: conservative (survival), baseline (steady state), and aggressive (growth). Model the financial and operational impact of each. Identify decision points where you could scale up or pull back. Present scenarios to leadership for strategic decisions.
5 Step 5: Finalize budget and communicate expectations
Step 5: Finalize budget and communicate expectations
Lock in approved budget with clear allocations by department and category. Set spending authority levels. Communicate budgets to all managers with context on strategic priorities and flexibility boundaries. Document approval processes for budget changes.
6 Step 6: Track actuals vs. budget in real-time
Step 6: Track actuals vs. budget in real-time
Monitor spending daily or weekly against budget. Calculate variance (actual minus budget) and variance percentage. Investigate material variances immediately. Create dashboards showing budget utilization by department. Flag departments at risk of overspending early.
7 Step 7: Hold monthly budget review meetings
Step 7: Hold monthly budget review meetings
Conduct structured reviews with each department leader. Discuss variances, explanations, and corrective actions. Assess if budget assumptions still hold or need adjustment. Make trade-off decisions: where to cut, where to invest more. Document decisions and update forecasts.
8 Step 8: Perform quarterly re-forecasting
Step 8: Perform quarterly re-forecasting
Update full-year forecast based on year-to-date actuals and changed assumptions. Adjust remaining months to reflect new reality. Consider reallocating resources from underperforming areas to opportunities. Report forecast changes to board with explanation of drivers.