Put together a realistic budget

  1. Start by putting your management team in a room and do a SWOT analysis – strengths, weaknesses, opportunities, threats – look critically at your business for a one year and five year time frame.  Decide what goals and initiatives the numbers will need to support.
  2. How will you generate a top line and a gross margin line?  What does your revenue and gross margin model look like in terms of numbers in the first year and for the first five years?  Set some top down goals.  Have the sales and marketing team in the room and find out what they are prepared to sign up for (the bottoms up check).  What is your cost of sales, your variable costs, which you will need to generate that top line?  Will you be paying commission to salespeople, at what rate?
  3. What will your manpower cost?  Put together a headcount plan, remember to include ramp up time for new hires, what will the benefits and taxes be (your fringe percentage), how will you find these people (will there be recruiting costs)?
  4. What are your G&A costs (general and administrative, everything below the margin line)?  Marketing, HR, rent, legal, accounting, IT/telecom, office supplies – think about what costs you will incur and spend time forecasting each item by talking to peers and/or getting real quotes.  Work in tandem with your administrative heads so they own their piece of the plan.
  5. Find out what line items your peer’s profit and loss statements have and use those as the line items of your spreadsheet.  Populate your spreadsheet, have a monthly columns for the first year, quarterly or annual for years two to five.
  6. Put together a planning calendar which takes you from your initial management SWOT meeting to presentation of the plan to the board.  Subject your spreadsheet to multiple levels of review.  Have the business unit owners drive their departmental tabs, roll it up and present to top management several times.  Document the assumptions underlying the numbers either on the spreadsheet or in a separate document.  Write a narrative to accompany the spreadsheet which highlights key assumptions, risks and timelines.
  7. Put together a capital plan of the fixed assets that will need to be acquired.
  8. Drive a balance sheet and cash flow projection off the P&L plan, capital plan and models for payables and receivables.  Model your starting cash and see how your plan generates or utilizes cash.  This is the trickiest modeling but absolutely essential.

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