If your business operates on a calendar year basis, now is the perfect time to begin planning for your 2015 budget and operating plan.  By now, the books should be closed on the first half of 2014, and the full-year outlook should be coming into focus.  With this updated vision of the current year, you can begin to gradually turn your attention to next year.

Although most calendar-year companies don’t really roll up their sleeves and begin budgeting in earnest until the fourth quarter, a lot of the groundwork for this concerted effort can be accomplished during the dog days of July and August.  Then, after Labor Day, preliminary communications can be disseminated throughout the organization to increase awareness and stimulate thinking about the planning process for the coming year.

But what exactly can be done at this early stage in the planning or budgeting process and who should be involved?  The answer depends on your company’s planning process, but this is typically the time of year when information can be gathered and planning assumptions can be developed.  The summer months are also a good time to review your experiences from the prior year budget and develop a process and schedule that incorporate your key learnings.  Finally, and most importantly, now is the perfect time to update and test financial planning software or spreadsheet-based budget models.  These preparatory tasks are typically performed by the Financial Planning department in larger organizations and the CFO and his staff in small to mid-sized companies.

These may seem like simple tasks, but significant information gathering is often required to develop overall planning assumptions that are relevant to your particular industry.  For example, assumptions about employee benefit rates, such as health insurance, can require input from outside benefit advisors who must gather information from insurance carriers.  Your outside advisors will appreciate the additional time that you give them by requesting this input now, rather than in October (when everyone else does).

And, unless your company has an effective process for producing rolling financial forecasts, significant effort may be required to develop the most important assumption of all:  the full-year forecast for 2014.  This, of course, is establishes the basis for the 2015 budget, so it is a critical “assumption”.  It is seldom sufficient, and never optimal, to use a full-year forecast that consists of actual results for the first half of the year plus the budget for the second half of the year.  A little extra effort devoted to developing a sound full-year forecast during the third quarter will yield a much more meaningful budget in the fourth quarter.

Finally, it is easy to forget that the current full-year forecast and all budget assumptions will require senior management approval prior to the start of the official planning season.  And waiting until the fourth quarter to obtain the attention of senior management is never a good idea.  Other, more immediate, issues tend to occupy their attention as year-end approaches.

So, if you start laying the groundwork for your annual planning or budgeting process now, your efforts should produce a better outcome later.

Lou Butcher
Practice Leader
lou.butcher@customsystems.com

© Copyright Custom Systems Corporation 2014