Annual Budget Preparation Checklist

Walk through the 3-5 strategic priorities for the fiscal year with the CEO and head of strategy before any line-item work starts. Capture which initiatives are funded, which are stretch, and which are explicitly off the table — this prevents department heads from submitting wishlist budgets that don't ladder to strategy.

Lock the framework — top-down vs. bottom-up vs. zero-based — and the milestone dates for first draft, finance review, exec review, and board approval. Distribute the calendar to every cost-center owner so there's no ambiguity about when their submissions are due.

Send each department head their pre-populated template with prior-year actuals, current-year forecast, and headcount roster. Include the assumptions packet — wage inflation, benefits load, T&E policy changes — so submissions use consistent inputs.

Pull from the GL — NetSuite, Sage Intacct, or QBO — by product line, customer cohort, and geography. Strip out one-time items (settlement revenue, asset sales) so the run-rate baseline is clean before applying growth assumptions.

Tie the sales pipeline to recognized revenue using the ASC 606 timing rules that apply — point-in-time vs. ratable. For SaaS, separate new ARR, expansion, and churn; for services, model based on backlog and utilization. Common error: forecasting bookings as revenue without the ratable lag.

Run base, upside, and downside cases against named macro assumptions — Fed funds path, sector-specific demand, FX if international. Document the trigger that moves you from base to downside (e.g., two consecutive quarters of pipeline coverage below 3x).

Walk the CRO through the model assumptions, quota plan, and ramp schedule for new hires. Get explicit sign-off on the number that will flow into the consolidated P&L — this is the one input the rest of the budget keys off of.

If the CRO won't sign, schedule a working session with the CEO to resolve. Common gaps: finance modeling on conservative ramp, sales modeling on full ramp; or finance not crediting expansion bookings already in pipeline. Document the resolution in the assumptions log.

Headcount is typically 60-75% of opex — get it right first. Roll forward the current roster, layer in approved backfills and net new hires by month, apply the merit pool and promotion pool, and load benefits + payroll taxes (FICA, FUTA, SUTA) using the current rates. Don't forget bonus accrual timing.

Track submissions against the calendar. Late submissions delay consolidation and exec review. Common gotcha: department heads submitting line-item totals without the supporting vendor detail — push back and require the underlying contracts list.

Walk each cost center through the largest five line items — software, consulting, T&E, marketing programs. Look for stale renewals (SaaS that's no longer used), duplicate tools across teams, and contracts that should be renegotiated at renewal.

Hold 2-5% of opex centrally as a CFO-controlled reserve for unbudgeted items — legal matters, surprise audits, opportunistic hires. Document the release process so department heads know it's not a free pool.

Collect all requests above the capitalization threshold (typically $2,500-$5,000 per the firm's capex policy). Each request needs: business case, total cost, useful life for depreciation, and quarter the asset is placed in service.

Apply the firm's hurdle rate — typically WACC plus a risk premium. Rank projects by NPV and payback period. Maintenance capex (replacing existing equipment) is usually approved on a different track than growth capex; flag the distinction explicitly.

Compute book depreciation by asset class on the schedule that matches GAAP useful lives. Don't confuse with tax depreciation (MACRS, Section 179, bonus) — those flow into the tax provision, not the operating budget. Include in-year placed-in-service timing so depreciation isn't overstated for Q1.

Start from budgeted net income, add back non-cash items (depreciation, stock comp), and model working-capital changes — DSO on receivables, DPO on payables, inventory days. A budget that hits net income but ignores working-capital drag is the most common cause of mid-year covenant breaches.

Walk the monthly cash balance to find the lowest point — usually around quarterly tax payments (Apr 15, Jun 15, Sep 15, Jan 15), bonus payouts, or insurance renewals. Compare to the minimum cash policy and credit-facility availability.

Model the revolver draw schedule, projected interest expense at the current rate index (SOFR + spread), and check projected covenant compliance — leverage ratio, fixed-charge coverage. Notify the lender's relationship banker if a draw above 50% of the facility is anticipated.

Run each covenant calculation (typically max leverage, min fixed-charge coverage, min liquidity) against monthly budgeted figures. Less than 15% headroom on any covenant in any month should trigger a conversation with the lender before the year starts, not after a breach.

Tie P&L, balance sheet, and cash flow together in the model — Vena, Cube, Adaptive, or a clean Excel build. Roll-forward checks: ending cash on CFS = balance sheet cash; retained earnings roll = beginning RE + net income - dividends. If the model doesn't tie, the budget isn't done.

Identify the three inputs the budget is most sensitive to — usually revenue growth, gross margin, and headcount timing — and show the EBITDA impact of a +/- 10% move on each. The board will ask; have the answer in the appendix.

Walk the CEO and exec team through the consolidated plan, highlighting changes vs. prior year, the assumption set, and known risks. Capture revisions in writing — verbal-only edits get lost between exec review and board prep.

Distribute the board package at least 5 business days before the meeting. Include exec summary, three-statement consolidation, capex plan, headcount roster, sensitivity table, and prior-year actuals comparison. Capture board-requested changes before final approval.

Import the monthly budget by GL account and cost center into NetSuite, Sage Intacct, or QBO so variance reports run automatically at month-end close. Validate totals tie to the approved board figure before unlocking access.

Standardize the variance package: P&L vs. budget by cost center, KPI dashboard (gross margin, opex %, cash burn), top-five favorable / unfavorable variances with commentary. Set the materiality threshold for written explanations — typically the lesser of 10% or $50K.

Block calendar time for the Q1 reforecast immediately after the March close. By then, three months of actuals plus refreshed pipeline data will tell you whether the plan still holds — and quarterly reforecasts are how a static budget becomes a living plan.