OK, maybe my example in the last illustration is a bit much, but planning is for everybody, all companies, not just the startups, so what the heck. It’s a not-so-small company, but the math is still pretty obvious.
The point is that budgeting expenses is a matter of simple math, common sense, and reasonable guesses, without statistical analysis, mathematical techniques, or any past data. The mathematics is simple; sums of the rows and columns. You’ve seen it before.
And, as with the sales forecast, you really need to have some idea of these numbers. Either you get it from past data, or you get it from your experience in the industry, or from a partner or team member with experience, or you do some shoe-leather research. Try the reverse telephone tree technique. Look for standard industry data.
Also, remember that even in the worst case, with the roughest estimates, you have to go only one month without having any idea, because by the second month, with plan-as-you-go planning, you have the first month’s results to help review and revise.
See the next illustration for a simple expense budget.
Match the depth and detail of your budget to the control and accountability you have on your team. Make it so that the rows are useful for following up later, looking at what was different from the plan and why.
Does your spending match your priorities? Remember the strategy pyramid, intended to help you keep your activities aligned with your strategy? This is where you begin to see it in action.
Aim for the right level of detail for following up. Too much detail makes it very hard to manage and track, and too much aggregation makes it hard to develop accountability. Do you know, in your business, who is responsible for each row in the budget? Does everybody else on the team know?
Before I go too much further, I’d like you to consider how important payroll is as part of you budget. Let’s see where those numbers came from. I recommend you record these amounts in a separate table, whose totals flow into the expense budget table.