When is the best time to prepare budgets and forecasts for the next calendar year?

The best time to prepare budgets and forecasts for the next calendar year is between the current year’s late Q3 and early Q4. This allows for completing most of the current year’s results, enabling better forecasting and ample time for planning, review, and adjustments before the next year begins. Here’s a breakdown of the critical steps to consider for optimal timing:

1. Start Planning in September–October (Late Q3 to Early Q4):
Begin gathering data from the current year’s performance and estimate anticipated revenue, expenses, or operational needs changes.
Engage departments early on to discuss their needs, expectations, and any strategic changes they foresee, such as new product launches, increased staffing, or expansion plans.
2. Create Draft Budgets and Forecasts by October–November:
Develop preliminary drafts and initial assumptions based on the latest data. Using up-to-date information helps make projections more accurate and reflect current market conditions and organizational goals.

During this phase, identify significant revenue and expense drivers and consider any macroeconomic factors that could impact the business, such as inflation, interest rates, or supply chain issues.
3. Refine Budgets and Approvals in November–December:
Refine the drafts based on input from stakeholders and leadership, aligning them with the company’s strategic goals for the upcoming year.
Review these budgets with critical decision-makers for adjustments and approvals. This timing allows enough room for revision cycles if needed, ensuring all departments are aligned and committed.
4. Finalizing in December:
Aim to finalize the budget by early December to allow departments time to prepare for implementation.
Once approved, distribute the budget to all relevant teams, along with clear guidance on targets and expectations for the upcoming year.

5. Adjust as Needed in Q1:
Allowing for a “forecast” period in Q1 is often beneficial, as new data or changes in economic conditions can make minor adjustments necessary. This step can provide added flexibility and accuracy in managing financial goals.
Starting early (around September) allows companies to gather accurate data, conduct thorough reviews, and make data-driven decisions while avoiding the rush that can occur late in the year.

So, when you are approaching the end of the financial year in your business, you will start preparing your P&L account, Balance sheet, and other financial statements to prepare for the tax calculations. Those can be used to create your budget and economic forecasts for the following calendar year. So, these calculations depend on when you started your business.