You had a successful budgeting season and started 2021 with a board approved budget. Now it’s the end of Q1 and you spectacularly missed your numbers. How do you fix things?
It’s not uncommon to create a 6×6 budget, that is, at the end of June create a new budget for the second half of the year because business has shifted so much. However, it’s not so normal to have to reforecast after 3 months. There are ways though you can correct things for future quarters and end the year on target.
To understand the answer, first let’s step back and discuss proper financial reporting and cadence. There are 6 reports the CEO must see every month:
This re-forecast offers a less hands-on solution to a complete re-budget and can be done very easily by your finance and accounting team. The only time I would recreate the budget after the first quarter is if there is a pivot in the business model and everything changes. Otherwise, wait till June to do 6×6 re-budget.
You must receive your financial reporting packet every month. This cadence will prevent surprises and re-forecast might be the simplest course of action. If a re-budget is absolutely necessary so early in the year, so be it. You will have to reexamine your assumptions to be more or less conservative, reprioritize goals, and confirm the direction the company is heading. Whatever you decide, it’s critical to have a strong budget as it’s your blueprint for the business for the year ahead.
Whatever stage you’re at in business, you need to be all over the numbers. In posts like this, we aim to offer bite-size food for thought – but in a few hundred words, we can only do so much.
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