When putting together a budget, there are plenty of important steps to take, but also several pitfalls to avoid. Here are some dos and don'ts for first-quarter budgeting.
Use your product or service as a base to build your budget around. Understanding what you must be able to accomplish is key to all budgets.
1. Do Create Clear Budget Policy
The first thing you should do when drawing up your first-quarter budget is ensure there is a clear budget policy lined up. The first-quarter budget can steer your budget for the entire fiscal year, so you need to plot out in advance how the first-quarter will keep your organization on track with its long-term goals. Your budget should line up with your organization's core needs, values and structure. For example, if you're operating a non-profit, you'll need to highlight in your budget policy the fact that your organization should not be allocating any funds to private individuals outside of employee salaries.2. Do Plan To Include Testing
Whether you're introducing new products or improving on current offerings, you're going to be conducting trials and testing on them. You need to be prepared to have the necessary trials performed on your product before it can be released to consumers. This means you must include those preparations and trials in your budget. Look at what the product needs. You'll need to understand what kind of testing each step or prototype will require and factor those tests into the budget accordingly. For example, if you're working on a marketing budget, be sure to include spending on market segmenting and testing ad campaigns in your budget.3. Do Include Wiggle Room
You need to ensure your budget has breathing room. You can make plans for how you will spend your budget through the first quarter or throughout the whole year, but you can't plan for every possibility. The Covid-19 pandemic is a perfect example of an unforeseen circumstance. Businesses that didn't include budgetary cushions for emergency situations may have found themselves floundering during the pandemic and needing to take out loans to cover unexpected costs and profit losses. You should include a budget line item for some small percentage of earnings each quarter to set aside untouched in case of emergency. If you need it, it's already built into the budget. If you don't need it that quarter, it can be kept for a later issue.4. Do Involve Stakeholders
Stakeholder feedback can be key in lining up your budget. You can't know the details about every aspect of your business, so it's vital that you discuss budgetary needs with department and team leaders, the executive suite and representatives of the employee and consumer communities. You can hold meetings and town halls or send out surveys for each group. Their feedback will help you gauge what areas the budget is most needed for for the quarter and do your job of breaking the budget down accordingly. Without stakeholder feedback, you run the risk of flying blind and allocating too much of the budget to a department that may not need it while another department falls by the wayside.5. Don't Forget to Track Spending
Tracking your organization's spending and expenses is a vital long-term process. If you don't do this, you may not notice shifting trends in spending or changing department needs in time to adjust the budget accordingly. You should keep track of what expenses you think each department will need and the budget breakdown to account for those expenses. Then, periodically track those expenses and funds as the month, quarter or year goes on to ensure your budgetary expectations are being met. If they are, you can keep moving forward. If they aren't, you'll be more on top of the situation and prepared to make the necessary adjustments.6. Don't Guess
Don't rely on guesswork when you're drafting up a budget. Predictive and restrictive tools have their flaws, but it's essential to know the cost of each aspect of your business to create accurate target funds and expenses. Guessing is part of budgeting. After all, you can't be completely accurate with money you don't have yet. However, you must base that guesswork off of actual data at your disposal, such as last year's earnings and expenses, in order to provide as accurate an estimate as possible to base your budget off of.7. Don't Set Unrealistic Expectations
While figuring out your budget for the entire year can be enticing, you should set aside time to review it quarterly or monthly as well. Projecting too far in advance can cause your budgetary plans and predictions to skew widely and stop matching your expenses as time goes on. Make time throughout the quarter and the year to review your budget and compare it to your expectations for that period of time. Did the organization perform as you expected? Is your budget still accurate? What needs to be tweaked or overhauled next time you draw up a budget? You can set big goals, but make sure you include the steps to reach those goals in your budget.Use your product or service as a base to build your budget around. Understanding what you must be able to accomplish is key to all budgets.
