So you sit down with your financial adviser or consultant, prepare for the brain-numbing task of setting your budget and out comes the routine question - "How much money do you need to make this year?"

If only it were that simple.

Hummmmm...Let me see. You want to make $200,000. Said and done. All you have to do is fill out a bunch of numbers on this sheet and it will all come true? Isn't that how the typical budget is created? Figure out how much money you want to make at the end of the year, predict your margin, and calculate the sales you need to generate?

Now, I don't know about you, but that strikes me as an over simplification of the most difficult part of running a business: landing a bunch of profitable work. I've worked for multiple companies that tried to budget this way and it never came out right. We would have been much more successful by assuming last year's performance would repeat itself.

Before I share a simple and effective budgeting approach, a little ground work is in order.

What Role Does A Budget Perform?
The purpose of your budget is to operationalize your strategic plan. In other words, your budget is a financial projection of what you plan to do this year. Your strategic plan should have identified new sales opportunities and the efforts required to take advantage of them.