Can next year’s plan fund the business and the life you want from it?
Revenue growth does not answer that question by itself. A new customer can require people and inventory before cash arrives. A hire can create capacity while reducing the amount available for distributions. Your budget needs to show those trade-offs month by month.
Milestone 11 turns the coming year’s ownership direction into connected income statements, balance sheets and cash flow statements. You adopt a supported plan, preserve it as the comparison and review actual results against it.
Build from the work the company will actually do
Start with your ownership goals and the CEO’s company direction. The CRO develops revenue from the customers, offerings and sales activity behind it. The COO establishes delivery capacity and costs. The CFO brings the contributions together with overhead, assets, debt, tax and cash timing.
This Owner → CEO → CRO → COO → CFO sequence makes the operating logic visible before the owner adopts the integrated plan. One person can carry more than one responsibility. Each material assumption still needs a person and support.
Revenue needs monthly drivers by line: volume, price, retention, recurring commitments or other drivers appropriate to the business. Delivery costs need the people, purchases and capacity required to earn that revenue. Use supported history to challenge the assumptions, not to replace them with last year’s total plus a percentage.
For a hypothetical employee with a $180,000 annual salary starting July 1, the calendar-year base salary is $90,000 before benefits, payroll taxes, recruiting and other actual employment costs. A budget carrying either $180,000 or zero for that year misses the timing.
The Annual Budget Build Worksheet organizes those inputs. The annual budgeting workbook supports the detailed build. The ongoing three-statement model holds the adopted values and continuing reporting. They serve different jobs in the same company financial project.
Preserve what the owner wants while testing what the plan supports
Open the coming-year targets on your Owner’s Scorecard. Trace salary, distributions and reinvestment through the financial plan.
Salary pays for operating work. Distributions are ownership cash. Keep their before- and after-tax bases clear. A gross salary and an after-tax distribution cannot simply become one after-tax total without a supported conversion.
If the plan cannot support a target, identify the choice: change an operating assumption, adjust timing, use available funding, reduce another commitment or explicitly reconsider the goal. The Owner’s Scorecard Reconciliation makes that conversation visible. Do not quietly replace your goal with the model’s forecast.
A goal can guide the first pass while the supporting work develops. A material unresolved funding assumption still prevents adoption of the affected plan.
Find the tightest cash month
Start from supported opening balances. Show when customers pay, suppliers are paid, payroll clears, equipment is purchased, debt is serviced and taxes or distributions leave the account. The Cash Timing Overlay connects those dates to monthly closing cash.
A profitable year can contain an unfunded month. Review the lowest month and relevant within-month pressures, not only the December balance. Confirm the reserve requirement and whether any planned borrowing or capital contribution is actually available. An unexplained line of credit cannot fill the gap.
The Distributable Cash Calculator begins from an identified cash line and shows what has already been deducted. Avoid subtracting working capital, taxes or other uses twice. Keep salary, tax funding and discretionary distributions separate, and confirm the relevant financing or ownership restrictions.
For a simplified hypothetical quarter, $100,000 of opening cash plus $120,000 of operating cash flow, less $50,000 of equipment purchases and $20,000 of debt principal, leaves $150,000 before discretionary distributions. An $80,000 reserve leaves $70,000 of quarter-end headroom if no other needs or restrictions apply. Monthly timing could permit less. That remaining cash carries into the next period; quarterly balances cannot be added together as if each were new cash.
Prepare the budget conversation
Bring the actual build and its source assumptions. The goal is to explain the plan well enough to adopt it or identify the work needed before adoption.
| Bring | Questions to resolve |
|---|---|
| Owner’s Scorecard and annual direction | Which Time, Cash Flow and Wealth goals does this plan support? What trade-off needs the owner’s decision? |
| Revenue and delivery assumptions | Which customers, pricing, retention, capacity and margins support the monthly numbers? Who owns each assumption? |
| People and spending commitments | Who starts when? Which costs are fixed, volume-related, discretionary or investments? |
| Connected statements and cash forecast | Which month gets tight? What reserve, funding and payment timing are supported? |
| Proposed adopted version and open items | What exactly is being approved? What must change before the plan can operate? |
The Budget vs Actual Variance Template prepares the later monthly comparison. The CFO Monthly Review carries the explanation, recommendation and commitment, linked to the full reports.
In the calendar-year annual-planning rhythm, the Summit begins the first pass. Q4 develops and tests the detail toward December 15 approval. A Summit worksheet or a trend projection is useful preparation, not a complete adopted budget.
Adopt one plan and retain it as the comparison
Record the owner’s actual choices, the exact approved version, the finance lead and next review. Check that the approved opening and all monthly values transfer correctly into the ongoing model.
A forecast can change as new information arrives. Preserve the adopted budget so the team can still explain what changed from the plan. Replacing it with the latest forecast would erase that comparison.
A newly approved next-year budget can be Installed before January when the complete build, supported funding, checked transfer and actual adoption review are done. There is no need to invent actual results or make a new purchase to prove use. As periods close, review actual versus budget monthly and explain line variances above five percent and material dollar differences.
Complete the five owner actions
Approval is supported by the detail and the actual decision. An unresolved monthly shortfall or an unchecked transfer keeps the affected work incomplete.
Open the five actions and their completion requirements
1. Build the ground-up monthly operating plan
- What revenue, capacity, margin, people and spending assumptions does each leader own?
Show: Twelve months of revenue drivers by line, direct/shared delivery costs, overhead, named hires and dates, assets, working capital, debt, tax and payment schedules.
Supporting work: Annual workbook and build support.
The Summit makes the first pass; Q4 develops and tests the monthly detail. Work in Owner, CEO, CRO, COO, CFO order, then integrate all three statements. Trends and targets can start the conversation, but every material line needs supported detail before approval.
Record the evidence location/date, what was inspected and any unresolved issue in your existing project. Mark it complete only when the evidence supports it.
2. Reconcile the owner’s goals
- What does the plan fund, and which trade-offs has the owner agreed to?
Show: Coming-year Scorecard targets traced to financial sources, with explicit decisions about salary, distributions, reinvestment and required funding.
Supporting work: Owner’s Scorecard Reconciliation; the three-statement views.
Keep salary for work distinct from distributions and state the before/after-tax basis. Show shortfalls honestly. Resolve them through supported operating choices, available funding or an explicit owner decision about the goal; never quietly replace a goal with the model result.
Record the evidence location/date, what was inspected and any unresolved issue in your existing project. Mark it complete only when the evidence supports it.
3. Test monthly cash timing
- Which month gets tight, why, and how will the plan meet its obligations?
Show: Supported opening balances, collections, supplier payments, payroll, assets, debt, taxes and distributions reconciled to every month’s closing cash.
Supporting work: Cash Timing Overlay; the model’s balance sheet and cash flow statement.
An annual profit can conceal a monthly cash gap. Confirm the reserve requirement and support any borrowing or capital contribution. An unexplained funding plug or unresolved cash shortfall prevents approval of the affected plan.
Record the evidence location/date, what was inspected and any unresolved issue in your existing project. Mark it complete only when the evidence supports it.
4. Support owner payments
- What cash can be paid, when, after obligations and the agreed reserve?
Show: A dated distribution calculation with an explicit starting line, cash uses already included, review limits and approved payment timing.
Supporting work: Distributable Cash Calculator; supporting model cash schedules.
Separate salary, tax funding and discretionary distributions. Avoid deducting working capital or taxes twice. Reconcile the remaining movements from the chosen starting line and confirm relevant restrictions with the finance lead.
Record the evidence location/date, what was inspected and any unresolved issue in your existing project. Mark it complete only when the evidence supports it.
5. Approve, integrate and review the plan
- Which exact plan was adopted, and does the ongoing model preserve it as the comparison?
Show: Documented owner approval, checked transfer of the opening and monthly values, preserved approved comparison, and monthly actual-versus-budget reviews as closed periods become available.
Supporting work: Approval and transfer guide; Budget vs Actual Variance Template.
An actual adoption review is the first use of a newly approved next-year budget. Record the choices, finance lead and next review; do not wait for invented actuals or a new purchase. Once reporting periods exist, explain line variances above five percent and material dollar differences. Keep forecast changes separate from the approved budget.
Record the evidence location/date, what was inspected and any unresolved issue in your existing project. Mark it complete only when the evidence supports it.
Review the milestone-specific 0–3 score and evidence test
0 (Not Started). You have not begun the annual budget work or demonstrated its purpose. There is no supported month-by-month financial plan connected to the owner’s goals. Identify unreviewed evidence separately from work that has not started.
1 (Learning). You can explain why an income-statement total or a revenue-growth percentage is not a complete budget. You can describe how operating choices, the balance sheet and cash timing connect to salary, distributions, reinvestment and debt. The ground-up annual budget has not yet been built.
2 (In Progress). The owner’s direction, first-pass proposals or detailed annual build is underway. Some monthly assumptions, financial support, integration, goal reconciliation, approval or review practice remains incomplete. A Summit first pass, a trend projection or a budget covering only the income statement does not establish completion.
3 (Installed). All five requirements are supported. A complete ground-up twelve-month budget is built from reviewed revenue drivers by line, delivery costs and margins, overhead, people and hire dates, capital spending, working capital, debt, taxes and owner payments. It produces connected income statements, balance sheets and cash flow statements from a supported opening. The owner has reviewed its implications for the coming-year Scorecard goals and explicitly resolved the required funding and goal trade-offs. Monthly cash needs, reserve requirements and distribution timing are supported. The exact adopted opening and monthly values are integrated into the ongoing model through a checked transfer and retained as the fixed comparison. The actual approval review records the owner’s choices; the finance lead and monthly review are assigned. As closed periods become available, actuals are reviewed against that budget each month, with explanations for line variances greater than five percent and material dollar differences. A newly approved next-year budget can meet this requirement before that year starts; do not invent actuals or require a new spending transaction to prove use.
The verification test. Open the adopted annual budget, its supporting build and the ongoing model. Follow one revenue line and one significant spending commitment from their drivers into the monthly statements. Identify the tightest cash month, planned owner payments and their effect on the owner’s goals. Show that the approved monthly values transferred correctly and remain the comparison. Explain the decision recorded at approval and, where actual periods exist, the latest variance review and response. A conditional first pass or unsupported funding assumption remains incomplete. The owner may work with the finance lead and use the reports.
Review suitable existing work before creating more documents. Record each action as complete, incomplete or not reviewed, with its source and date. You choose the saved score. Keep owner, peer, coach and AI judgments separate, with their reasoning and any disagreement. Unreviewed evidence is not automatically a zero. Preserve earlier reviews and name the next useful action and review date. A score does not substitute for qualified financial acceptance of a particular model.
Keep the annual plan useful through the year
Use monthly reviews to explain revenue, margin, spending and cash differences with their causes and response. A material issue returns to the person with decision authority before its deadline; it need not wait for the next scheduled quarter.
Quarterly reviews test whether the latest outlook changes priorities or payment decisions. Preserve the adopted comparison while recording any authorized revision separately. Annual planning develops the next plan from actual results and refreshed goals.
The five-year forecast begins with the identified annual budget and tests the longer path. Keep the current financial files in The Numbers and dated adoption and review records in The Rhythm.
Explore the idea further
- How to Build an Annual Budget That Predicts Your Cash with Ryan and Kim, episode 497. Connect the annual plan to the cash expected in the account.
- The 12-Step Revenue Forecast with Kim Clark, episode 463. Examine the evidence behind the revenue portion of the budget.
- The Income Statement Doesn’t Tell You If You’ll Have Cash with Pat Hobby, episode 462. Review why the balance sheet and cash timing belong in the annual plan.
Choose your next step
Review the wider system. The Ownership Assessment helps you review this capability beside your ownership goals and the other milestones. Keep missing evidence visible and choose the work that matters next.
Connect the work with support. The 90-Day Boardroom Blueprint brings ownership direction, the financial foundation and decisions into a first usable Playbook. You can explore that support directly; completing the Assessment is not a prerequisite.
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