Year-End Reconciliation for SMBs – Forecast and Budget (Part 3 of a 3 Part Series)

In this series we initially discussed government compliance related year-end tasks, and then addressed internal record keeping and accounting close.  In the final installment of this series on year-end tasks, we will discuss forecasting and budgeting.

You may be thinking, “I get compliance and accounting close as part of year-end reconciliation, but how does planning for next year fit into that definition?”  Well technically it does not – it is part of the strategic planning process.  However, when conducted properly it will seamlessly close the loop on the integrally related processes of planning, understanding the variances (e.g. actual vs. planned), closing the internal books and complying with federal and state regulations.  Year-end anxieties will be thing of the past.

There is a ton of great forecasting or predictive analysis software out there.  However, I’ve found that simple, assumptions-driven Excel models fit the needs most of the time for small to medium-sized enterprises.  At a very high level, there are four steps to any planning cycle –

  • Prepare business plan and strategies – this is where the senior management team provides overall guidance and sets the direction for the following year.  The job of any good finance and accounting professional is to translate that into actionable steps and achievable numbers.
  • Gather historical revenue and expenses data – look for trends.  There should not be a huge year-over-year variance on both revenue and expense sides.  If there is, make sure you understand why.  Look for drivers that could be useful in developing an assumptions-driven Excel model.
  • Set business or revenue targets and corresponding expense parameters. Clearly identify the assumptions so that the entire model could be easily tweaked.  In models I’ve developed in the past, I made all assumptions bold blue so that they can be easily identified.
  • Compile a master forecasting and budgeting template. A committee-led development of your forecast and budget is not only painful, it often simply does not work.  Go into the session with product that’s 90% finished, and focus on tweaking the assumptions to arrive at an agreeable resolution during the meeting.

A good forecast and budgeting model is a living document.  Throughout the year, you should be able to test and validate the assumptions; identify variances against the plan; and manage the risks.

Year End Reconciliation for SMBs – A Three Part Series

Part 1 – Federal and State Compliance

Part 2 – Accounting and Close

Part 3 – Forecast and Budget


About Richard Lee
Experienced finance and operations professional. Currently partner in five companies, adjunct professor of economics at Columbia College and executive contributor to a small business blog (; following corporate finance, M&A and management consulting tenures with Orbitz and Diamond Technology Partners; and six years of service with the United States Army.

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