December 4, 2023

Creating Your Company’s Budget: A Step-by-Step Guide for Small Business Owners

Why Bother?

Although budgeting for the upcoming year can be a daunting process for many small business owners, it is an essential planning step to (a) define/reinforce your company’s strategy, (b) establish an actionable plan for the upcoming year, and (c) align your team behind that plan.

When done properly, budgeting for the upcoming year is a strategic exercise that sparks thoughtful discussions with your team to establish and refine agreed-upon targets. These targets will then serve as the baseline for measurement of your business’ performance for the upcoming year and can foster an environment of accountability throughout your organization.

Step 1: Create a Sales Plan

A robust and achievable Sales Plan is the cornerstone of the annual Budgeting process. To achieve buy-in from your Sales Leader, it is imperative that they are meaningfully involved in this process. If they are not, it is likely they will not feel accountable towards the outcome. You will have a plan without any real buy-in which is not a formula for success.

You or your Financial Leader will need to also work cross-functionally with the Sales Leader to lend technical expertise (Excel, financial modeling) to the exercise. This individual will also be responsible for incorporating the outcomes of the Sales Plan into a cohesive company-wide Budget and should therefore lead the modeling aspects of the project.


Another critical step at the onset of this process is determining the level of granularity at which to project your sales. Most small businesses have a roster of recurring customers that make projecting sales at a customer level feasible. While this exercise may seem daunting if you have a number of customers, it is really quite manageable with access to historical customer data and a bit of Microsoft Excel expertise.

For this purpose, we suggest reviewing your past sales data (Sales, Gross Profit, Gross Profit Margin) by customer over the past three years. From this historical data, identify outlying customers (+ or – 1 Standard Deviation is a good rule of thumb for this exercise) in the following categories:

  • Sales (Size of Customer)
  • Gross Margin (Profitability of Customer)
  • Growth Rate of Customer (Trend)

Once you’ve identified significant customer outliers across these criteria, work with your Sales Leader to answer the following questions:

  • How can we deepen our relationship with our largest customers?
  • Have our smallest customers become a distraction?
  • How can we increase the profitability on our low margin customers?
  • Why are we winning and losing business across our customers?
  • Who are our customers with the most potential for growth?

These discussions should lead to next steps that will be the outline of your 2024 Sales strategy.

Once you’ve broadly outlined this Sales Strategy for the upcoming year, work with your Sales Leader to prepare reasonable 2024 projections for those customers that incorporate realistic expectations for those initiatives. In some cases, revenue will not be expected to recur for customers that you determine are a distraction from your best customers / core business.

Now turn your attention to the group of customers that are not outliers (the “core group of customers”). Determine the historical growth rate for this core group of customers and project a reasonable rate for the upcoming year. Apply that rate consistently across prior year sales levels across this group of customers.

Take a step back and review the outcome of this process (your 2024 Sales Forecast!) for reasonableness. Most small business owners are optimists but it is important to bring a skeptical mind to this exercise. Scrutinize sizeable increases in Sales and Gross Profit Margin — are they really achievable or is it a best case scenario?

Make any final adjustments to create an achievable Sales Plan that has the buy-in of both your Sales and Financial leaders.

Step 2: Determine Company Staffing Needs

Now that you’ve formalized your 2024 Sales Forecast, it’s time to align your human resources with your strategic objectives, ensuring you have the right team in place to execute your sales plan effectively. If you are a growing organization, you will likely need to create new roles to fulfill increasing volumes of business and administer an increasingly complex business. Conversely, if your sales are declining, you may need to terminate some of your existing staff to maintain or improve profitability.


Start by exporting an employee roster with pay rate information from your payroll processing software. Tailor the list to be specific to each department leader and be extra careful not to share sensitive pay information of anyone other than the employees who the leader oversees. Engage with department leaders to assess staffing needs for the upcoming year. Prompt your department leader to identify potential terminations, incremental staffing requirements, and individuals warranting promotions within their teams. Pose the questions:

  • What skill sets will be pivotal in the coming year?
  • Are there new markets or product lines that require specialized talent?
  • If you could rebuild the department, what changes would you make?

This is the time to review your organizational chart and map out any significant staffing or restructuring initiatives for the upcoming year. Add any necessary positions to the roster and pencil in an estimate of the annual salary for the role. Don’t forget that payroll taxes and health insurance for these additional roles could cost 10-20% in excess of the base salary.

Take a step back and review the outcome of this process. Scrutinize incremental staffing requests:

  • Is there software or other tools that could make existing staff more effective?
  • Are there underperforming members of the team who may be prompting the need for additional labor?
  • Is staffing growing faster than expected sales growth?

When you have settled on a Staffing Plan for 2024, incorporate expected changes in base salary including Cost of Living Adjustments / raises, promotions, and bonuses. Ensure that payroll taxes and health insurance costs reflect reasonable changes based on the change in your underlying compensation and full time employee headcount, respectively.

Make any final adjustments to create an achievable Staffing Plan that has the buy-in of both your department leaders.

Step 3: Establish Departmental Operating Expense Expectations

Once you have a clear picture of staffing needs, turn your attention to the other expenses that keep your business running. Start with a multi-year Income Statement and focus on the non-compensation related expenses. Sit down with department leaders to forecast costs associated with facilities, supplies, technology, repairs, and maintenance.

Facilities and Administrative Costs: Evaluate your workspace requirements. Will your current facilities support your projected growth, or is downsizing a more practical move? Consider rent, utilities, insurance, and any upcoming lease negotiations that could impact your budget. Review your lease to determine the rental rate for the upcoming year and do not forget about recurring Common Area Maintenance (“CAM”) charges.

Supplies, Equipment, and Technology: Assess the supplies and equipment necessary for daily operations. Are there opportunities to buy in bulk or renegotiate with suppliers? Don’t forget to factor in technology upgrades or subscriptions needed to keep your systems current and competitive.

Maintenance and Repairs: Regular maintenance can prevent costly emergency repairs. Schedule a review of all major equipment and facilities to determine any anticipated repairs or maintenance needs in the upcoming year.

Remember in this exercise that not all expenses are created equal. Work with department leaders to prioritize spending based on strategic goals and return on investment. This exercise will helps ensure that your budget allocation aligns with your business priorities.

Step 4: Reviewing and Finalizing the Budget with Team Involvement for Buy-In

Bring together your leadership team to review the proposed budget. Encourage open dialogue about resource allocation and priorities and solicit concerns from the team about the achievability of the plan. This collaboration helps identify potential oversights and can foster a sense of ownership and accountability amongst your team.


Once reviewed, finalize your budget with the leadership team’s approval. Then, communicate it clearly to the entire company. Enter the budget into your Accounting software to allow you and your team to systematically track your progress towards your agreed-upon plan for the upcoming year.


Budgeting is not just a number-crunching exercise; it’s a fundamental component of strategic planning that ensures your business is on the path to success. By involving your team in creating a customer-focused sales plan, assessing staffing needs, and building a budget that reflects your company’s goals, you’ll set a strong foundation for the year ahead.

Call to Action

Don’t want to go it alone? Please don’t hesitate to reach out! At Gray Feather CFO, strategic planning is our business and we would love to help you build a Budget that defines your goals and aligns your team behind that common goal.

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