How to Prepare the Budget/Operating Plan

As we approach another year-end, I have been inundated with calls on how to prepare next year’s plan.   Please note that guide below does not include everything so modify accordingly.

Here is the cheat-sheet

Start with preparing the “best-guess budget” before you embark on the exercise.  This seems counterintuitive but if you have been at the company you know the trends.  If you are new get the actuals from accounting and do your best. This is so you can intelligently guide the department heads.

Company Goals: Understand the company’s goals and how it translates into each department’s goals:  The idea again is to have a simple overview of what the next year looks like.

Set up a simple model. Budgeting for most departmental heads is a chore.    Keeping the model simple is the key.  Add actuals to the sheet too, so the departments have an idea. Divide the model into quarters instead of months.

Send the model.  Use a collaboration tool like Google Sheets to send each department head a sheet to enter a few days prior to your meeting.  Here is a sample.

Meet & Greet. Set up a meeting with department leaders:  S&M, Product(R&D) and G&A

Sales & Marketing: First and foremost comes the S&M leadership.  The idea is to start from revenue and figure out how we will get there.  What is needed in Headcount, Marketing and other spend to get to the projected Sales.  For eg. How many MQL’s are needed to get to the sales number and what is the cost of getting those MQL’s.  What do you need in Customer Success to support the growth in Customers ?

Product : Second comes the Product department .  Does the Product roadmap include everything that the sales need?  What is needed in terms of Headcount, Software, hosting and others to achieve the Product roadmap.

G&A: Armed with the S&M and R&D info, you will need to understand what is needed on the G&A side in terms of Headcount and other spend categories.

Iterate: There will be plenty of iterations before everyone agrees. Every company/department is different and you need to navigate the waters accordingly.

Bring it all together. Model everything to get a P&L, BS and Cash flow statement. There are number of tools like Adaptive Planning and Anaplan to capture all this.  If you are a small company then you may want to start with excel.

You will find that not one size fits all, so modify accordingly.