Where do you get budget numbers? How do you set a budget and organize it? What are some standard ways to measure your budget? There are several approaches you can take to create your budget. Examples of these approaches may include basing your budget on:
• Percent of projected gross sales.
• Percent of past gross sales.
• Per unit sales.
• Seasonal allocation.
• Projected cash flow.
Select a budget methodology that will work best for your business. You may want to make this choice based on how you track your sales and revenues, or based on industry standards. Don’t forget your fundamentals which say that budget is an educated guess and a management tool. Keep the budget process in perspective. You are making a series of educated guesses. If it makes you feel better, remind your audience how you came up with your projections in your marketing plan. For this same reason, it is important to review your budget throughout the year and make adjustments when necessary.
One of the best ways to create your budget may be to build your projections on the previous year’s performance. If you have this information, the foundation is in place. Look at trends and expectations in each area and modify these numbers based on your expectations for the upcoming year. Look at industry performance and trends and take those factors into consideration. Once you get to the bottom line, ask yourself if it is realistic, or if you need to go back and modify revenues or expenses to more closely capture what you expect to happen in the year ahead.