As entrepreneurs are putting the last minute, final touches on the 2017 operating plan, there’s an important point that is often overlooked: Q4’s sales results inform next year’s budget. Meaning, entrepreneurs are an optimistic bunch and like to make big plans using a combination of a bottom-up and top-down sales forecast. Only, these forecasts are made before Q4 has finished, and Q4 is often the best sales quarter as many companies make purchases at the end of the year with fresh budget in place for the new year.
Here are a few thoughts on Q4’s sales results informing next year’s budget:
- New sales drives a number of other functions like the number of people needed for support, customer success, customer implementations/on-boarding, etc. such that Q4 sales results affects hiring plans for the new year
- If Q4 sales exceed plan or are below plan, that means there’s a higher/lower run-rate to start the new year, and budgets will need to be adjusted
- If Q4 sales are off plan, good or bad, that’ll reset sales expectations for Q1 of the next year higher or lower
As much as budgets and operating plans for the next year are reviewed and finalized, the reality is that they’re built around hitting sales expectations for Q4. If Q4’s sales are better or worse than expected, budgets should be revised.
What else? What are some more thoughts on how Q4’s sales results inform next year’s budget?
David Cummings on Startups 