How would you build an annual budget for a business unit?

What the interviewer wants to hear

• Start from strategy and targets set by leadership
• Use drivers such as volume, price, headcount and rates
• Collect inputs from budget owners
• Phase by month and include seasonality
• Review, challenge and get approval

Model answer

I start with the targets and strategy from leadership, such as revenue growth and margin goals, so the budget is not just last year plus 10%. Then I build it from drivers. Revenue comes from volume and price by product or region. Costs come from drivers too: headcount times average salary, rent from signed leases, and marketing as a cost per acquisition times planned new customers. I collect inputs from each budget owner, but I challenge them with history and benchmarks. I phase the numbers by month, taking seasonality into account, such as festival demand in India or Ramadan and summer patterns in the Gulf. I also budget the balance sheet and cash, not just profit. Finally the draft is reviewed with management, changed where needed and approved, and it becomes the baseline for monthly variance reporting.

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