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What are the basic procedures in preparing an annual budget and related financial statements?

Working with a start up company and have developed a basic income statement but am thinking there must be a template and logical process to develop that into cash flow and balance sheet also. IE. Never done a budget from scratch: is there a proven standard method Budgeting and planning 101?


Topic Expert
Mike Caruana
Title: Director of Financial Services
Company: Diamond Resorts International
(Director of Financial Services, Diamond Resorts International) |

Assuming you're using Microsoft Excel, there are several templates you can download from their website at And yes, there are standard budgeting frameworks for you to choose from. The SBA has good resources that cover the basics. One such good blog is

(Finance Analyst) |

Thank you Mike for taking the time to reply. I am using excel and somewhat familiar with it and its formulas, but very new to macros/programming. I will review the templates as a starting point.
Again, I appreciate your time.

Topic Expert
Jaime Campbell
Title: Chief Financial Officer
Company: Tier One Services, LLC
(Chief Financial Officer, Tier One Services, LLC) |

The two main methods are backward-looking and forward-looking. In a more stable company, a backward-looking budget makes more sense: How much did we make/spend last year/quarter? Anything different? Put in some round numbers and there you go.

A start-up company is typically more volatile, and so forward-looking budget makes more sense. I generally start with the personal income requirements of the owners and work backwards until you get to gross revenue.

You also need to consider funding. If the company is bootstrapped, then you have to carefully manage cash flows such that every dollar spent directly brings in the greatest amount of dollars, and then allocate how those dollars are spent to directly bring in more dollars and a little bit to indirectly bring in more funds.

If the company has already received investment capital, then you have a pot to work with and it's a matter of putting those dollars to work to get a return over a longer term.

Feel free to message me privately to talk about technological tools which can help you hold all of this information. I do not agree with my fellow Proformative member Mike who says to go with Microsoft templates.


(Finance Analyst) |

Thank you for taking the time and for your insightful response. We are cash strapped so not looking to spend on any tech tools. At our current size (<1MM sales) Excel will have to do for now. but will keep you in mind as we grow.

Mark Matheny
Title: VP - FInancial Planning and Analysis
Company: Novolex (formerly Hilex Poly)
(VP - FInancial Planning and Analysis, Novolex (formerly Hilex Poly)) |

Another thought is to take a look at some annual reports for smaller companies Reading through some of the footnotes, etc. have helped with making sure key items have been considered on the balance sheet and cash flow items.

Topic Expert
Paul Benedetto
Title: CFO, Director of Finance, Consultant
Company: Nextwave Software, Rethink Fabrics
(CFO, Director of Finance, Consultant, Nextwave Software, Rethink Fabrics) |

Yes, having a specific budgeting tool is nice, but not necessary at this stage of your business; Excel will do just fine, if someone at your firm has an intermediate grasp of the spreadsheet and formula building. Keep things simple and cheap at this juncture. Once you get into the several million dollar range and need to get other managers providing data in the process, then it makes sense to transition towards a more formal budgeting tool to make things more efficient.

In any budget/financial model, the most important is to get buy-in to the numbers. Although the finance person is most likely the “spreadsheet jockey” for the process; that does not mean that she/he should be preparing the whole thing in a vacuum. Get any other managers, business partners, Board, etc. to provide key business assumptions for their areas of control. The more details that you can extract from folks, the stronger the model and their resulting acceptance. Without buy-in, there is no accountability to the budget when you start reporting and measuring results.

My preference is to go with a zero-based budgeting approach – As yourself and your colleagues what it is going to take to produce your business deliverables. Every resource should be justified.

As far as mechanics of a startup / small business budget, I usually have multiple tabs on a spreadsheet. There is a personnel section that builds up your staffing component, one for operating costs and then a third that details out your sales model. I might also include a separate tab for “Major Business Assumptions and Sensitivities”; more on that later.

Next I model out the financial statements. You can use multiple tabs or just one long one, but you want not only a Profit and Loss, but also a Balance Sheet and maybe a Cash Flow statement. If you are looking for financing from a bank or equity investor, your balance sheet is going to be the MOST IMPORTANT financial report. It’s funny, but back when I was in college and in public accounting, none of this was taught. It was only after about 10 years working in private industry that I started getting asked the question “so how much cash do we need” by the CEO and Board. I had to initially scramble to figure out the balance sheet aspects and modeling. Another 10 or so years later, this still is the most important question asked and thus I’ve continually gotten better at it; coming up with various tricks along the way (e.g. receivables and payables timing, loans and interest, capex, etc.); practice, practice, practice.

Lastly, once you have your core model together (and it ties out), I normally build a key assumptions and sensitivity tab. First relate the key sales and expense drivers of the business. Then create an adjustment section (e.g. revenues, +/- by x %), same for COGS, Personnel, and Operating Expenses). Using this info, overlay a P&L and BS that is driven from these numbers. What this does is give you a quick way to adjust your model on the fly when reviewing with the bank, investors, your CEO. Having this dialed in will give you “HERO” status, trust me; it’s nice to get thanked every once in a while for what is mostly a thankless job… Also the assumptions and sensitivity allows you to have frank discussions with your internal team when it comes time to evaluate the budget/model. You may want to pay so and so a certain amount, but if the business can’t support it, then adjustments need to be made. You look at the top level business viability in this way first, then go back to the base figures and adjust downward.

One other thing. Optimally, once you have your budget/model together, get yourself in a routine to refresh it on a quarterly basis, always looking out 12+ months. In the end a budget is just a “snapshot” of assumptions at a particular point in time. With startups there is so much unknown which can change your near and mid-term outcomes. Call the updates a “Forecast” if you want, but it is better to know where things are projecting towards than finding out too late that you are going to run out of cash on x date.

(Controller) |

This is a great response, I also like to track the actual cash flow on a weekly basis to make sure nothing is way off track from the budget. Would also like to add that what the bankers would like to see from any reports you give them, is how they will get their money back.

(Finance Analyst) |


Great Answer, I appreciate your time. My dilema is - While I am pretty good with excel and formulas, I dont' have the budget process..."mechanics" as you stated, down pat. I have a sales plan; Assumption; Cap X assumption; capital raise assumptions; Inc Stmt; Balance Sheet; and Cash flow. However, to your point - All well and good, but my Assets don't equal Liab. + Equity. All cells are formulas.

I guess what I am asking is that because I am inexperienced at putting this all together from scratch....what are the mechanics to make sure it is done right. I started with income statement, then balance sheet, I am lost as to how to reconcile....Help if possible.rr I am not an accountant but have strong accounting background. Is this an "accounting 101" issue? I can't find any real....Here's the mechanics for putting a budget and financial statements together. Sorry for the rambling...just very confused.

(Finance Director) |

It looks like you have the raw data and are close to having a good document on paper. Paul makes some good points and his experience sounds similar to issues I had to deal with. I would be glad to assist you in this final phase if you're willing to share your information. If so send me an email and your contact info and we can discuss the problem, mcorrgatyahoo [dot] com. I started and operated a small company similar in size to yours and have also put together budgets/forecasts in excel for a company with $50M in sales so I might be able to get you started. Based on my experience I think your lender (and you) would want to maintain a rolling 13 week cash forecast as well. When cash flow was very tight this was my most important financial tool. In December I lost my job due to an acquisition and I'm in the process of finding a new position so I may have some time to lend you a hand.

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