Industry leaders follow five steps to manage their budgets, performance, and cash flow. Check it out here.
While it may look comprehensive, it doesn't have to be. In Francis, you can create rolling forecasts based on current actuals in a few clicks.
Smaller companies can choose only to implement a part of the steps:
- Some may choose only to do a start-of-year budget and no rolling forecasts
- Others may choose to only work with a rolling forecast but not a locked start-of-year budget
Companies normally start with a business plan, typically tied to an event like assessing a business idea or fundraising.
Business plans are often created by mixing top-down and bottom-up planning, with iterations to reconcile the two.
- Top-down: Where do you need to be at a future time? What key metrics do you need to deliver on to get there (e.g., We need to grow by X in the next 12 months)?
- Bottom-up: What future income and expenses do you expect and wish to include (e.g., known large purchases or contracted clients)?
If you start with a business plan, you can also use that to create your first budget.
If you already have a model and need a business plan beyond 12 months, you can use your existing model as a starting point to create a longer-term business plan.
The start-of-year budget is a 12-month budget at the beginning of your planning year. It typically follows the calendar year, but it can vary.
The start-of-year budget is great for setting objectives and holding yourself accountable. Use this budget to set expectations for the year and approve it with stakeholders if relevant.
We recommend locking the budget once approved. If you want to update it throughout the year, we have rolling forecasts for that. Even if your performance greatly varies from the start-of-year budget, keep it for reference throughout the year.
Rolling forecasts greatly support running your business since they reflect your latest updated figures and thoughts.
On a rolling basis, update your model with current actuals and other model edits to create an updated forecast.
Every quarter, lock this forecast so that you can compare it to your actuals and start-of-year budget later.
You ultimately decide how often you wish to create and lock rolling forecasts - It is typically done on a bi-annual, quarterly, or monthly basis.
We recommend naming your rolling forecasts something that’s easy to identify (e.g., “Q2 forecast” or “April forecast”).
The light version - creating a new forecast that includes updated actuals but no other model edits - can also bring great insights.
If you always make your rolling forecasts run 12 months out, you can use your Q1 forecast as a starting point to create your next start-of-year budget.
Follow-up + reports
We recommend that you follow up and report on your performance once a month. With the right tool, it doesn't have to take long and lets you catch any errors/variances immediately.
Following up and reporting typically involve five steps:
#1 Close your books and pull your new actuals into your budgeting platform.
#2 Verify that your transactions are categorized correctly.
#3 Compare your budget vs. rolling forecast vs. actuals on a "Last Month," "Year-to-date," and "Full year" basis.
#4 Report your key metrics to your stakeholders if relevant. Boards generally like to see both your budget, rolling forecast, and actuals.
#5 Decide if you want to make any other model edits for your next forecast and implement those updates.
Read more about closing your books here.
Scenarios also greatly support running your business since you can investigate how strategic plays and events impact your business.
There are typically two kind of scenarios:
#1 An index of your base case (e.g., good and bad case). These are are typically applied to your start-of-year budget to allow for some deviations.
#2 To experiment with specific events (e.g., What if fundraising doesn't go through? What if revenue stalled? What if we got a new large client?). These are typically more operational, used for decision-making throughout the year, and therefore applied to your latest forecast.
Using Francis for budgeting
If you build your budget using the Francis spreadsheet, it will come with built-in functionality to easily follow the budgeting cycle.