Don’t Just Roll It Forward: Build a Better 2027 Budget
As 2026 enters its final months, many businesses are beginning to think about next year. One of the most valuable steps you can take now is building a thoughtful, realistic budget for 2027. A good budget should be more than last year’s numbers with a percentage increase. It should reflect what one’s business looks like today, where it’s expected to go, and how those plans will affect profitability and cash flow.
Here is a practical approach to building a 2027 budget that can actually help guide one’s business.
Start With 2026 Annualized Actual Results
Before looking forward, start with what has actually happened in 2026. Use the most recent year-to-date financial results and annualize recurring revenue and expenses to establish a realistic starting point. For example, nine months of actual activity can often provide a much better baseline than the original 2026 budget.
More importantly, identify the reasons behind significant variances. Did sales exceed expectations because of sustainable growth or a one-time project? Were payroll costs lower because an open position went unfilled? Did insurance, technology, or other operating costs increase permanently?
A 2027 budget should be built from the business that is actually operating – not the business that was expected to operate a year ago.
Incorporate Known Personnel Changes
For many organizations, personnel costs represent one of the largest expenses which makes staffing assumptions critical to an accurate budget.
Consider known or anticipated changes such as:
- New hires and planned start dates
- Salary and wage increases
- Bonuses and incentive compensation
- Promotions or changes in responsibilities
- Employee departures or vacancies
- Health insurance and benefit increases
- Payroll taxes and retirement contributions
The timing of these assumptions matter! A $90,000 position beginning July 1 does not create $90,000 of salary expense in 2027. Building personnel costs by employee and anticipated start date can significantly improve the reliability of the budget.
Challenge Revenue and Pricing Assumptions
Revenue projections should be tied to specific business drivers rather than simply assuming, for example, 5% growth.
Ask what will actually create the increase. Will you serve more customers? Raise prices? Introduce a new product or service? Expand into a new market? Lose a significant customer or contract? Consider volume and pricing separately. A company expecting a 3% price increase and 4% customer growth has a much more meaningful revenue assumption than simply entering 7% growth into a spreadsheet.
For organizations with contracts, grants, subscriptions, or recurring customers, build the budget using known agreements first and then layer in reasonable assumptions for new business.
Plan for Capital Expenditures
Equipment purchases, vehicles, technology upgrades, facility improvements, and other major investments can easily get overlooked when budgeting because they may not appear immediately on the income statement. Develop a separate capital expenditure plan identifying what purchase is expected, when the expenditure will occur, and how it will be financed. A business can achieve its budgeted profit while still experiencing significant pressure on cash if it is simultaneously funding major capital projects.
Turn the Budget Into a Cash Flow Forecast
Profit and cash are not the same thing! Once the income statement budget is complete, translate it into expected cash flow. Consider customer collection timing, vendor payment terms, debt payments, capital purchases, owner distributions, tax payments, and seasonal working-capital needs. This step often reveals financial pressure that is not obvious from the budgeted income statement alone.
Build More Than One Scenario
Finally, avoid building a budget that assumes everything goes exactly according to plan. Consider developing at least three scenarios: a realistic base case, an upside case, and a downside case. What happens if revenue is 10% below expectations? What if a major hire happens six months earlier than planned? What if material or insurance costs increase? Scenario planning allows management to identify potential problems before they happen and establish thresholds for when action may be necessary.
Make Your Budget a Management Tool
The value of a budget does not come from creating it once and filing it away. Throughout 2027, compare actual results to the budget, investigate meaningful variances, update projections, and use the information to guide decisions.
When built correctly, a budget becomes more than a financial exercise. It becomes a roadmap that connects a company’s strategy, operations, profitability, and cash needs – and gives management a clearer picture of where the business is headed.
If you have questions about the information outlined above, McKonly & Asbury’s experienced professionals are here to help. Learn more about our Entrepreneurial Accounting Solutions (EAS) practice by visiting our Entrepreneurial industry page or by contacting a member of the EAS team.
About the Author
Zach Starner, MBA is a manager on the Entrepreneurial Accounting Solutions team. He provides back-office accounting and outsourced financial services to a diverse client base, including large contractors, family-owned businesses,… Read more
