As we almost step into a new year, it’s crucial for individuals and businesses alike to lay down a solid financial foundation, and to look ahead to what is coming. Creating a budget for 2024 can serve as a roadmap to guide our financial decisions throughout the year. In this post, I’ll delve into some of the specifics of budgeting, with a focus on managing SG&A costs, optimizing our client revenue, remaining profitable, and seizing new business opportunities, and yet to keep an operational healthy balance to innovate and invest in employees.

A few years ago, I was added to the Dutch Chamber of Commerce as a member of the board, and with that, I became responsible for the P&L of the company. This was not necessarily a decision by choice, it happened like that because some people from the management team left the company after a merger with another company. In a short amount of time, I had to learn more about finances and all the intricacies that come with that. And…, what can I say, I liked the added responsibility and what I learned during that time.

First, when setting up a budget forecast, my advice is to look into the past to plan the future. Next, establish your business priorities, and make sure to align those with the company goals that you have previously set together. Identify ongoing expenses and work with what you have.

Start with the known numbers and make a split between cost and revenue. Keep the current- and the budget-year side by side in one overview, so you can always compare the years. From a cost perspective ensure to make the appropriate financial reservations to facilitate investments and innovations. The more granular you get, the more difficult it will become. So, don’t overdo it. From a revenue point of view, don’t forget to include your churn assumptions (if any) and client growth forecast (new logo business & cross- and upsell revenue with existing clients). For the sake of ease in this post, let’s leave new product market revenue projections in new or existing verticals out of the occasion.

Here is a breakdown of some general SG&A costs that I carry into account:

  • Salary / Bonus expense
  • Other salary expenses (work-from-home allowance, etc)
  • Holiday allowance reservations
  • Health benefit contributions
  • Pension plan contributions
  • Other benefits (incentives, etc)
  • Travel expenses (lodging, airplane, etc)
  • Staff seminar / trainings reservations
  • Team days
  • Meals & entertainment reservations
  • Professional services (legal, tax, consultancy fees)
  • Recruiting fees
  • Advertising & promotions
  • Telecommunications costs
  • Office supplies
  • Other dues & subscriptions (postage, etc)
  • Office rent

After this, I take some specific SG&A tech costs into account:

  • Network / infrastructure
  • Hardware (laptops, monitors, other peripherals)
  • Accessibility / user testing reservations
  • Upcoming software subscription investments
  • Upcoming emerging technology reservations (think about ChatGPT)
  • Hosting
  • Audit security checks
  • Certifications

It is safe to make a 7-10% increase in the SG&A costs year-over-year.

For the revenue side of things, make sure to include:

  • Client BAU revenue
  • Expected growth (Cross- and upsell) expectations
  • New logo business growth expectations (be ambitious!)

Set aside a separate tab in your overview sheet with churn expectations and divide those between certainties and potential future projections with their respective impacted client revenue.

It is wise to create a separate tab for the Staffing cost section. In this section, you can include the total allocated salary per employee and all the elements that determine that total staffing cost:

  • Salary cost allocation type (being a direct or indirect cost)
  • Local currency with the respective FX rates (if employees are abroad)
  • Tax & fringe rates for specific regions in the world
  • Leave approval reservation costs
  • Holliday allowance costs
  • Merit increase projections for next year
  • Potential inflation corrections for next year
  • Current bonus amounts and projections for next year
  • Incentive projections

This should give you a pretty good insight into what to budget for in the upcoming year.