Prepare a Budget

July 23, 2012
Take the first step in knowing where your business is going next year.

Why is a budget helpful?

Basically, a budget is a useful road map to guide your business through the year. In order for any business to achieve maximum success, a dependable and accurate budget is necessary for all aspects of sound operational management and planning.

Who needs a budget and who is responsible to prepare it?

There is not a single business that will not benefit from establishing a budget for the next year.

Once you have decided to prepare a budget, you, as owner, should have your staff participate in each phase of the budgeting process that affects the line items for which they will later be responsible.

What does a budget accomplish?

A budget gives you a base, or starting point, to estimate how much revenue will be needed to meet all of the expenses for a given time period – typically, a year. It tries to anticipate your spending needs and estimates your sales and other sources of revenue. It helps you predict when money comes in and goes out so you can better manage your cash flow. It’s also useful when you are trying to demonstrate your business plan, e.g., to a lending agency or investor.

The three main elements to consider in any business budget are 1. sales revenues, 2. expenditures, and 3. profits. To create your budget, you’ll need to anticipate a dollar amount for each of these elements. Existing businesses can look to past figures for guidance; new businesses must make an educated guess.

Therefore, a good basic budget can:

  • Forecast the timing and amounts of your spending
  • Set realistic goals for income and expenses
  • Give a standard against which to measure performance
  • Help control your expenses
  • Show when you might overspend so that you can adjust1

For any given time period, revenue and expenses should be in a relationship that the business can sustain without undue owner hardship and contributions. Does your budget reflect a policy to establish an operating reserve to guard against cash flow shortfalls? If you are anticipating a deficit, how much will you have to contribute and when?

When should you prepare a budget?

Budgets are usually done several weeks or months before the start of the next year.

The first step in the budget process is to review the financial performance over the current year to date and what is forecast for the remainder of the year. This includes comparing the current year’s budget and forecast to actual figures achieved. Based on this review, new goals and objectives should be developed. These objectives should fit into your strategic long-range plan and help you make progress toward your ultimate goals.2

Final Tips

  • It’s better to be cautious with revenue estimates.
  • Try to prepare the budget showing a “positive net cash flow” or at least “zeroing out” at year end. (If you can’t do this, you may have to personally contribute to the pot during the year.)
  • Add a cushion: Your business will need some cash on hand for day-to-day operations and unexpected expenses, so be sure to build a cash reserve into your budget.
  • Play around and look at “what if” scenarios. After viewing your first totals, go back, reset values, and put in different figures; your budget worksheet should allow you to look at as many “what if” scenarios as you want.3
  • Take a long look: If a one-year budget is helpful in mapping out your immediate goals, then a three-year budget can help you focus on your longer-term goals. Going beyond three years brings in too many variables and can be very inaccurate.
  • Measure performance: Once you have a budget, you can periodically (we recommend doing this monthly) calculate how you’re doing compared to your plan and make changes (reforecast) as needed in your operations.

Once you have all your numbers in place, you can begin to see where your money comes from and where it goes, which helps you direct your attention to areas that need improvement. Establishing a realistic financial plan can be significant in developing a blueprint for success.

1. Guide to Creating a Perfect Budget. Irwin Speizer, Freelance Writer

2. Dr. Paul J. Pavlik, Operational Management of Your Dental Practice, 2009

3. Support Centers of America (GLSEN)

Read more from Dr. Pavlik here.


Dr. Paul J. Pavlik is the founder and president of Tracker Enterprises, Inc., a practice management think tank and transition resource for dentists. His experience includes over 35 years as a successful dentist, practice sales and transitions facilitator, practice management coach, speaker, author, and researcher. He is available for questions or comments on this or other practice management subjects by emailing him at [email protected] or by phone at 719-592-0878. For more practice management tips, he welcomes you to visit his website at and participate in his blogs.

©2012 Tracker Enterprises, Inc. ™

Reproduction prohibited without written consent.

Dr. Pavlik and Tracker Enterprises, Inc. assume no responsibility for business decisions made by the reader. It is recommended that the reader also seek legal, accounting, or financial planning advice before making any business decisions.