The timeline for starting to prepare the budget for the next year is a crucial phase of financial planning that requires consideration of several factors.
The optimal time for this depends on the specifics of the business, its strategy, seasonality, and the internal planning process.
To determine the best time to start the budget campaign, a business needs to go through several steps that help break down all the processes in detail. The first step is to assess the business cycles and seasonality.
For example, companies typically begin preparing their budget 3–6 months before the start of the new fiscal year. This allows them to thoroughly work out all expense and income items, as well as account for strategic changes.
However, in some industries (such as retail or tourism), demand can fluctuate significantly depending on the season. Budgeting should take into account when the business reaches its peak activity.
After that, it is necessary to analyze historical data and understand what mistakes were made during the previous budget campaign. For instance, you can compare current expenses with those of the previous year and identify the key items that require revision.
The budget should also be aligned with the company's long-term goals. If the company plans to revise its strategy (for example, expanding into new markets or launching a new product), this needs to be taken into account during the planning phase. For instance, if a company is planning to launch a new product next year, it is worth starting the budgeting process earlier to account for necessary investments.
Next, it is important to gather information on key market factors that influence the business. This may include inflation forecasts, raw material prices, growth forecasts, or recession predictions.
It is also very useful to allow time in the budgeting process for adjustments and recalculations due to changes in initial parameters. For example, if a campaign starts 6 months before the beginning of the fiscal year, the business may need to recalculate results based on the performance of 9 or 10 months. This adjustment will allow for a more accurate annual plan.
Here, the question may arise: if recalculations are indeed required, should the budget campaign be launched well in advance, or is it better to start it as late as possible?
Let’s look at the characteristics of both approaches.
Early Budget Campaign
Launching an early budget campaign makes sense when the business is on the path of changing its development strategy. In addition, starting the budget formation process well in advance can be helpful in an unstable economic environment, as well as when preparing for large investments or projects. External changes: In the context of economic instability or rapid market changes, early planning may be a necessity.
In these cases, an early start allows for a comprehensive calculation and simulation of achieving new goals, as well as an assessment of the required resources.
It is not advisable to start the budget campaign early if the economic situation is stable, the financial department's resources are limited, and there is not enough information. In such cases, collecting the budget will only waste time and distract company employees from other important operational tasks.
Late Budget Campaign
Experts do not recommend starting the budget collection process in the last months of the year, as this may cause several difficulties for the business.
For example, employees may not have enough time to conduct an analysis and prepare sales and production plans, meaning that the budget will not be detailed, which can limit data transparency. In addition, incomplete or inaccurate planning may lead to overspending or, conversely, underfunding of key areas.
To avoid these risks, it is recommended to follow a pre-developed budgeting schedule, ensure timely involvement of all necessary departments, and use automated tools to speed up the process. This way, you can create an accurate and efficient budget aligned with your company's strategic goals.
