When you sell your company one day, an acquirer will want to know what muscle you have
One of the muscles a future acquirer will assess your team for having pertains to building your near and long term operating budget. Is your budget built on a good strategic planning muscle or is your budget really just a math exercise for your finance team. Your budget should be the financial plan for your strategic plan.
Because this time of year many businesses are building their budget for 2026, here are some do’s and don’ts to have in mind:
Don’ts:
- Don’t do your planning and budgeting at the same time. When your team knows you’re trying to build a budget while developing a strategy, they will be constrained in their thinking.
- Don’t build your budget assuming what you spent this year is a good basis for what you will spend next year. A line by line P&L review of costs will be needed to pull out anomalies from this year that shouldn’t be assumed and added on to for the new year.
- Don’t build a budget that isn’t linked to your company strategy for the new year. Your budget should tell a story and that story should be where your team plans to invest in the year ahead and where you will look to improve.
- Don’t build a budget and then put it on the shelf. A budget is a living tool that monthly should facilitate strategic dialog around how the actual results compare – much can be learned strategically and tactically when you have a good monthly cadence.
Do’s:
- Identify what your strategic initiatives will be for the new year and what impact they will have on your budget – where will you invest in your business, where will we look to drive improvements that could be reflected in our financials (i.e.: cost saving or productivity improvement opportunities).
- Identify for yourself and your team what aspects of your business will get investment dollars in the new year and which may not unless actual results exceed budget. Your budget should help you see where every $1 of investment should go going and is that investment going to move your strategic plan forward.
- Identify the base assumptions that will underpin your budget. Base assumptions include; what cost of living changes we are planning for labor, raw materials cost changes, utility expenses for your location(s), vehicle expense (if you have a fleet), insurance expense assumptions, etc, etc.
- A budget should be a financial roadmap for each of your key functional department managers. Make sure they understand their role in supporting and working to the budget specific to their area of responsibility.
- A budget should help you see that you’re protecting and building upon your company core competence. A good strategic plan should identify what your company core competence is.
- Use your budget as a learning tool. The best organizations are learning organizations. A budget is an opportunity to identify each month where your planning was good in what you expected your financial results to be and where your planning was off and how you can learn to avoid the same “off” again in the future.
- Don’t build a culture that has the budget being owned by your finance team. Yes, they are the ones to build the spreadsheets and report the results but the budget is owned by the leadership team.
Budgets are powerful tools to help guide and track your company progress. Building a good budgeting muscle today will reward you in many ways, including checking an important box for a future acquirer that wants to see that your company possesses such a muscle. Budgets aren’t math exercises, they are powerful financial planning tools so use time as a friend in leveraging this enabling tool at your company.
