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Budget Preparation Procedures

Document Type: Procedure
Version: 1.0
Last Updated: February 2026
Distribute To: CFO, Controller, Department Heads

Purpose​

Establish procedures for preparing the annual operating budget to align resources with strategic objectives and provide financial targets for the organization.

Why Budgeting Matters​

Benefits of Formal Budgeting:​

  • Aligns spending with strategy
  • Sets performance expectations
  • Enables variance analysis
  • Supports cash flow planning
  • Facilitates bank/surety discussions
  • Creates accountability

Without a Budget:​

  • Spending is reactive
  • No early warning system
  • Difficult to measure performance
  • Bank/surety concerns
  • Missed opportunities

Budget Calendar​

Typical Timeline:​

MonthActivity
SeptemberKick off budget process
OctoberDepartment input, revenue projections
NovemberDraft budget, management review
DecemberFinal approval, board presentation
JanuaryBudget implementation
MonthlyVariance analysis
QuarterlyForecast updates

Budget Components​

1. Revenue Budget​

================================================================
         REVENUE BUDGET
================================================================

Fiscal Year: _______________

================================================================

BACKLOG ANALYSIS:

Projects in backlog:
| Project | Contract Value | Remaining | FY Revenue |
|---------|----------------|-----------|------------|
|         |                |           |            |
|         |                |           |            |
|         |                |           |            |
| TOTAL   |                |           |            |

Backlog to recognize: $________________

----------------------------------------------------------------

NEW WORK PROJECTION:

Historical win rate: _____%
Bid pipeline: $________________
Expected wins: $________________

Revenue from new work: $________________

----------------------------------------------------------------

TOTAL REVENUE BUDGET: $________________

Compared to current year:
  Current year (projected): $________________
  Growth/(decline): $________ (____%)

================================================================

2. Direct Cost Budget​

================================================================
         DIRECT COST BUDGET
================================================================

Revenue Budget: $________________
Target Gross Margin: _____%
Direct Cost Budget: $________________

----------------------------------------------------------------

BY COST TYPE:

Labor:
  Projected hours: ________________
  Blended rate: $________________/hr
  Total labor: $________________ (____% of revenue)

Materials:
  Based on project mix: $________________ (____% of revenue)

Subcontractors:
  Based on project mix: $________________ (____% of revenue)

Equipment:
  Owned allocation: $________________
  Rental projection: $________________
  Total equipment: $________________ (____% of revenue)

Other direct costs: $________________

----------------------------------------------------------------

TOTAL DIRECT COSTS: $________________

GROSS PROFIT: $________________ (____%)

================================================================

3. Overhead Budget​

================================================================
         OVERHEAD BUDGET
================================================================

----------------------------------------------------------------
SALARIES & WAGES (Non-billable):

| Position | Count | Annual Salary | Total |
|----------|-------|---------------|-------|
| Executive | | | |
| Accounting | | | |
| Admin | | | |
| Estimating | | | |
| PM (overhead portion) | | | |
| Other | | | |
| TOTAL | | | |

Payroll taxes & benefits (_____%): $________________

TOTAL PERSONNEL: $________________

----------------------------------------------------------------
FACILITIES:

Rent/mortgage: $________________
Utilities: $________________
Maintenance: $________________
Property tax: $________________
Security: $________________

TOTAL FACILITIES: $________________

----------------------------------------------------------------
INSURANCE:

General liability: $________________
Auto: $________________
Workers comp (overhead): $________________
Property: $________________
Umbrella: $________________
E&O/Professional: $________________

TOTAL INSURANCE: $________________

----------------------------------------------------------------
PROFESSIONAL SERVICES:

Accounting/audit: $________________
Legal: $________________
IT support: $________________
Consulting: $________________

TOTAL PROFESSIONAL: $________________

----------------------------------------------------------------
TECHNOLOGY:

Software subscriptions: $________________
Hardware/equipment: $________________
Communications: $________________
Website/hosting: $________________

TOTAL TECHNOLOGY: $________________

----------------------------------------------------------------
MARKETING & BD:

Advertising: $________________
Trade shows/events: $________________
Association dues: $________________
Entertainment: $________________
Promotional: $________________

TOTAL MARKETING: $________________

----------------------------------------------------------------
VEHICLE/TRAVEL:

Company vehicles: $________________
Fuel: $________________
Travel: $________________
Mileage reimbursement: $________________

TOTAL VEHICLE/TRAVEL: $________________

----------------------------------------------------------------
OTHER OVERHEAD:

Office supplies: $________________
Bank fees: $________________
Bad debt allowance: $________________
Training/education: $________________
Miscellaneous: $________________

TOTAL OTHER: $________________

----------------------------------------------------------------

TOTAL OVERHEAD: $________________

Overhead as % of revenue: _____%

================================================================

4. Profit Budget​

================================================================
         PROFIT BUDGET SUMMARY
================================================================

Revenue:                    $________________

Direct Costs:               $________________
Gross Profit:               $________________  (____%/

Overhead:                   $________________

Operating Profit:           $________________  (____%)

Other Income/(Expense):
  Interest income:          $________________
  Interest expense:         $________________
  Other:                    $________________

Pre-Tax Profit:             $________________  (____%)

================================================================

Budget Development Process​

Step 1: Strategic Planning Input​

Before budgeting, answer:

  • What are our growth objectives?
  • Are we entering new markets?
  • Adding capacity (people, equipment)?
  • Capital investments planned?
  • Any major changes to operations?

Step 2: Revenue Projection​

Bottom-Up Approach:

For each project in backlog:
  - Remaining contract value
  - Timing of completion
  - Expected billing by month

For new work:
  - Pipeline analysis
  - Historical win rates
  - Market conditions
  - Capacity constraints

Top-Down Check:

  • Compare to industry growth rates
  • Validate against capacity
  • Stress test assumptions

Step 3: Direct Cost Estimation​

Based on Revenue Mix:

Project TypeLabor %Material %Sub %Equip %
Ground-up
Renovation
Tenant improve
Service/repair

Apply percentages based on projected revenue mix.

Step 4: Overhead Budgeting​

Zero-Based Approach (Recommended):

  • Justify each line item from zero
  • Don't just inflate last year's numbers
  • Question every expense
  • Link to strategic priorities

Incremental Approach (Faster):

  • Start with current year actual
  • Adjust for known changes
  • Apply inflation factors
  • Add/subtract strategic items

Step 5: Consolidation & Review​

Management Review Questions:

  • Is revenue achievable given capacity?
  • Are margins realistic vs. history?
  • Is overhead appropriate for revenue level?
  • Does cash flow work?
  • Do covenants remain in compliance?

Monthly Budget Allocation​

Spreading the Budget:​

================================================================
         MONTHLY BUDGET ALLOCATION
================================================================

                | Jan | Feb | Mar | ... | Dec | Total |
----------------------------------------------------------------
Revenue         |     |     |     |     |     |       |
Direct costs    |     |     |     |     |     |       |
Gross profit    |     |     |     |     |     |       |
Overhead        |     |     |     |     |     |       |
Operating profit|     |     |     |     |     |       |

================================================================

Revenue Allocation:

  • Match to project schedules
  • Account for seasonality
  • Consider historical patterns

Cost Allocation:

  • Direct costs follow revenue
  • Overhead mostly level
  • Adjust for timing (insurance, taxes)

Variance Analysis​

Monthly Variance Report:​

================================================================
         BUDGET VARIANCE ANALYSIS
================================================================

Period: _______________

                 | Budget | Actual | Variance | % |
----------------------------------------------------------------
REVENUE          |        |        |          |   |

DIRECT COSTS:
  Labor          |        |        |          |   |
  Materials      |        |        |          |   |
  Subcontractors |        |        |          |   |
  Equipment      |        |        |          |   |
  Other          |        |        |          |   |
Total Direct     |        |        |          |   |

GROSS PROFIT     |        |        |          |   |

OVERHEAD:
  Personnel      |        |        |          |   |
  Facilities     |        |        |          |   |
  Insurance      |        |        |          |   |
  Other          |        |        |          |   |
Total Overhead   |        |        |          |   |

OPERATING PROFIT |        |        |          |   |

================================================================

SIGNIFICANT VARIANCES (over 5%):

Item: _____________________
Variance: $_________________
Cause: ____________________________________________________
Action: ___________________________________________________

================================================================

Variance Thresholds:​

VarianceRequired Action
≤5%Note in report
5-10%Explain cause
over 10%Explain cause + action plan
RecurringUpdate forecast

Rolling Forecast​

Quarterly Forecast Update:​

As each quarter closes, update remaining year:

Annual Budget: $10,000,000
Q1 Actual: $2,400,000
Q1 Budget: $2,500,000

Remaining Budget: $7,500,000
Remaining Forecast: $7,200,000 (adjusted)

New Full-Year Forecast: $9,600,000

When to Re-Forecast:​

  • Major contract win/loss
  • Significant market change
  • Operational disruption
  • M&A activity
  • Strategic pivot

Capital Budget​

Separate from Operating Budget:​

================================================================
         CAPITAL BUDGET
================================================================

Fiscal Year: _______________

================================================================

EQUIPMENT:

| Item | Cost | Timing | Funding |
|------|------|--------|---------|
|      |      |        |         |
|      |      |        |         |

TOTAL EQUIPMENT: $________________

----------------------------------------------------------------

VEHICLES:

| Item | Cost | Timing | Funding |
|------|------|--------|---------|
|      |      |        |         |
|      |      |        |         |

TOTAL VEHICLES: $________________

----------------------------------------------------------------

TECHNOLOGY:

| Item | Cost | Timing | Funding |
|------|------|--------|---------|
|      |      |        |         |

TOTAL TECHNOLOGY: $________________

----------------------------------------------------------------

FACILITIES:

| Item | Cost | Timing | Funding |
|------|------|--------|---------|
|      |      |        |         |

TOTAL FACILITIES: $________________

----------------------------------------------------------------

TOTAL CAPITAL BUDGET: $________________

Funding sources:
  Cash from operations: $________________
  Equipment financing: $________________
  Line of credit: $________________
  Other: $________________

================================================================

Budget Approval​

Approval Process:​

  1. CFO/Controller - Prepare and review
  2. Executive Team - Review and adjust
  3. Owner/Board - Final approval
  4. Department Heads - Communication

Documentation:​

  • Budget summary
  • Supporting schedules
  • Key assumptions
  • Comparison to prior year
  • Strategic alignment

Communication​

After Approval:​

Share with stakeholders:

  • Department budgets to managers
  • Revenue targets to sales/BD
  • Overhead budgets to cost center owners
  • Summary to bank/surety (as needed)

Don't share:

  • Individual salaries
  • Sensitive projections
  • Details that create unnecessary anxiety
  • Strategic Planning
  • Cash Flow Forecasting
  • Variance Analysis Procedures
  • Financial Reporting

Template provided by support.construction. A budget is a plan—without one, you're just hoping.