By Kenneth Boyd, Lita Epstein, Mark P. Holtzman, Frimette Kass-Shraibman, Maire Loughran, Vijay S. Sampath, John A. Tracy, Tage C. Tracy, Jill Gilbert Welytok

You can begin drafting the business plan after the business’s executive management teams or new company founders have decided that the concept for the new business endeavor has merit (which is by no means a small task). You can prepare a draft by following four simple steps:

  1. Delve into historical business information.

    In order to start the budgeting process, you should have a good understanding of your company’s prior financial and operating results. Review as much history as is available and relevant to the current idea, whether it stretches back three months, one year, five years, or longer. Of course if you’re planning an entirely new business, the availability of internal historical information is limited, but plenty of external information is usually available from similar businesses.

    Remember that although the history of a company may provide a basic foundation on which to develop a budget, by no means is it an accurate predictor of the future.

  2. Involve key management.

    You must ensure that all key management team members are involved in the planning process, covering all critical business functions, to produce a reliable projection. The accounting and financial departments actively participate in the planning (and rightfully so, as these are the people who understand the numbers the best) and they produce the final forecast.

    Critical business data comes from numerous parties and sources, and all of that data must be included in the planning process to produce the most reliable projections possible.

  3. Gather reliable data.

    The availability of quality market, operational, and accounting data represents the basis of the budget. A good deal of this data often comes from internal sources. For example, salespeople may pick up on customer needs that aren’t being met in the marketplace or a company executive may hear about pending legislation that’s likely to lead to new opportunities.

    With this information and some research, you can begin to determine sales volumes, personnel levels, wages rates, commission plans, and so on.

    The internal information is certainly of value, but it represents only half of what you need, because external information and data are just as critical. Having access to quality and reliable external third-party-produced information is absolutely essential to the overall business planning process and the production of reliable forecasts.

    Market forces and trends that aren’t apparent in internal data may be occurring and set to impact your new business, product, or service over the next 24 months.

  4. Coordinate the start of the planning process.

    Most companies tend to start the planning process for the next year in the fourth quarter of their current calendar year. This way, they have access to recent financial results on which to support the budgeting process moving forward.

    The closer the date of the financial data is to when the projection is made, the more detailed the information and results being produced. If you prepare a budget for the coming fiscal year, then you can reasonably include monthly financial statement forecasts (with more detailed support available). Looking two or three years out, you can produce quarterly financial statement projections (with more summarized assumptions), and so on.

When preparing your company’s budgets, try to use information that’s as complete, accurate, reliable, and timely as possible.

Though you can’t be 100 percent sure about the data and information gathered for your plan (because by definition, you’re attempting to predict the future with a projection), with proper resources (including appropriate internal management, external subject-matter experts or consultants, and allocating financial resources to secure critical information that’s not readily available or free), you can avoid large information “black holes.”

What worked two years ago may not provide management with the necessary information today on which to make appropriate business decisions. Just ask any retailer that formerly relied on brick-and-mortar stores and print-based advertising campaigns how the Internet and e-commerce have reshaped their business models.

Although management has put forth the effort to restructure the company’s operations in a changing market environment, a plan based on an old projection model with outdated assumptions doesn’t capture the essence of the new market realities. Remember, the planning process represents a living, evolving thing that must constantly be updated and adapted to changing market conditions.