Many companies see the process of developing an annual budget as nothing more than an accounting exercise and often don’t give it the time it deserves. What they don’t understand is that many private equity firms see the budget as an indicator of how proficient management is in forecasting the future.
When the potential buyers come in, one of the first things they ask for is the revenue projections for the next several years, along with expenses and profits for the period. If management’s projections can’t be trusted, then the value of those potential increased revenues and profits can’t be used to help increase the value of the company.
When you develop the annual budget, consider it a test of how well you can predict the future. Give it the time and effort it deserves. The value of your company might depend on it.
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