Budget vs. Projection
The other day, I was working with a client
Who said he me to create a budget for him for the coming year.
Why?
He had created a budget when he'd first started the business,
But when he actually got into running the business
The rubber hit the road,
And that budget
Didn’t match reality.
In 2024, he planed to spend more on hiring, and anticipated projects would be delayed
And, he needed to know how this would impact the future of his business.
So (he said) he needed someone to come in
And create a budget.
Here’s the thing:
This founder didn’t need a budget;
He needed a projection.
Aka - A financial model capable of calculating the financial future of his business from a cash perspective.
Why does this matter?
If this founder had hired an accountant to create a budget for him,
It would have either been:
At best, useless
At worst, lying to him about how his money should be spent this year.
Budgets have to be based on something to be useful.
For example,
What you want your burn rate to be each month
How much profit you need to make at the end of the year
What you predict your revenue will be, given your sales pipeline
How much cash you need in the bank
How quickly customers pay their bills
Etc.
If you don't have a basis for your budget
Then you're making a plan for the year
That could be sending your business off a cliff.
So before you start,
It’s important to clarify
Which you need.
Enjoyed reading this article? Subscribe to receive more via email here.
Know a Founder or Entrepreneur who'd love this content? Please share it!
