1.3 Building a Budget

Time: ~25 minutes

What You'll Learn

• The difference between top-down and bottom-up budgeting
• How to build a 12-month revenue projection
• Expense categorization and forecasting techniques
• Common budgeting pitfalls and how to avoid them

Key Concepts

Top-Down vs. Bottom-Up

There are two fundamental approaches to building a budget:

Top-down: Start with a target (e.g., "we want 20% growth") and work backward to figure out what needs to happen to get there. Fast but can be disconnected from reality.

Bottom-up: Start with individual line items (e.g., "we'll close 15 deals at $50K each") and add them up. More accurate but more time-consuming.

The best budgets use both: bottom-up for the detail, top-down as a sanity check.

The 12-Month Projection

A useful budget isn't a single number — it's a month-by-month projection that accounts for:

• Seasonality — Most businesses aren't flat across the year
• Growth assumptions — How fast are you realistically growing?
• Step changes — New hires, new products, price changes that hit specific months
• Working capital — The cash you need to fund operations between revenue events

What You'll Do

In this lesson, you'll:

1. Analyze historical data to identify revenue patterns and seasonality
2. Build a bottom-up revenue projection for 12 months
3. Categorize and forecast expenses
4. Assemble a complete budget with monthly granularity
5. Validate your budget with top-down sanity checks

How to Start

start lesson 1.3

Your AI will guide you through building the budget piece by piece, challenging your assumptions along the way.

Skills You'll Use Later

• Revenue projection (foundation for scenario planning in 1.4)
• Expense categorization (used in variance analysis in 1.5)
• Monthly granularity (essential for identifying trends and variances)