A Sensible Approach to the Budgeting Process

Whether you are a small technology company, a diversified corporation, a business in turnaround or one of the many in-between, the budgeting process will be enhanced if focus is directed toward strategy, operations and finance. In addition, personnel who have as stake in the firm’s financial strength, growth and overall value should be involved in the budgeting process.

Consider these following concise issues:


  • Using a disciplined approach, target and analyze market opportunities – then project these opportunities into revenue streams that have predictable profit margins.
  • Focus on core competencies. For example, if you build commercial buildings and revenue is slowing, don’t talk yourself into believing that you have the ability to profitably build schools.
  • Identify key challenges: consider such things as borrowing requirements and trade credit needs because of rapid growth; senior management being spread too thin; the willingness to say no to low margin business; a competitor in an acquisition mode . . . the list can be endless.
  • Evaluate competition with the knowledge that there are always firms who can give you a run for your money and who do some things better than you.
  • Identify merger opportunities and related implementation issues – don’t underestimate related costs.
  • Identify senior management weaknesses and develop training and/or replacement plans to correct them.


  • Prepare financial analysis and improvement plans.
  • Establish compensation plans based on clearly defined goals and benchmarks.
  • Implement and enhance financial reporting that will improve decision making.
  • Analyze and improve cost structures.
  • Coordinate sales and production planning.
  • Develop a process that identifies and then eliminates marginally or unprofitable customers and SKUs.


  • Identify and source alternative financing; e.g., extending trade debt terms.
  • Improve cash management: e.g., renegotiate equipment leases.
  • Match operating results and income tax estimate payments by paying estimate installments using the lower “annualized income adjustment” method.
  • Reduce investment in accounts receivable by changing billing and collecting policies and practices.
  • Develop processes that will reduce investment in inventory.

To summarize: the firm’s budget represents management’s best estimate of future performance. A renewed and fresh focus on strategy, operations and finance should greatly assist the firm in meeting or exceeding its projections and in achieving above-average long-term financial performance.

Harry Cohen, CPA, is a senior associate of LeadershipOne and has accumulated over 40 years of high level financial, management and operational experience with companies of all sizes and in numerous industries. He can be reached at 916/435-9228 or [email protected].