Should I budget top-down or bottom-up?

Best practice is both. Set top-down revenue and profitability targets, then let department heads build bottom-up budgets within those constraints. Iterate until the two approaches converge.

How often should an annual budget be updated?

The annual budget is typically set once and then used as the baseline for variance analysis. If conditions change significantly, create a reforecast rather than modifying the original budget, so you can track forecast accuracy.

What EBITDA margin should I target?

For SaaS companies, 15-25% EBITDA margin is typical at scale. Earlier-stage businesses may run at breakeven or negative EBITDA while investing in growth. The right target depends on your stage, growth rate, and investor expectations.

How do I handle currency in a UK budget?

Budget in your functional currency (GBP for most UK companies). If you have international revenue or costs, budget those in local currency and apply forecast exchange rates. Include a separate FX impact line so you can isolate currency effects from operational performance.

Example

Annual Budget Example

A 120-person B2B software company based in Manchester with £5.2M annual revenue. The business sells a subscription product to mid-market companies and is forecasting 18% growth this year. The finance team is building the annual budget for FY2026.

Example data

Financial model

Line Item

FY Total

Revenue

£1,200k

£1,280k

£1,350k

£1,370k

£5,200k

COGS

(£360k)

(£384k)

(£405k)

(£411k)

(£1,560k)

Gross Profit

£840k

£896k

£945k

£959k

£3,640k

Salaries & Wages

(£480k)

(£492k)

(£510k)

(£1,992k)

Rent & Facilities

(£45k)

(£180k)

Software & Tools

(£32k)

(£34k)

(£35k)

(£36k)

(£137k)

Marketing

(£60k)

(£65k)

(£70k)

(£55k)

(£250k)

EBITDA

£223k

£260k

£285k

£313k

£1,081k

Revenue

Revenue ramps from £1.2M in Q1 to £1.37M in Q4, reflecting a 14% within-year growth rate driven by new customer acquisition and expansion revenue.

Salaries & Wages

The largest single cost. Includes 8 new hires planned across Engineering and Sales in Q2-Q3, each with a 3-month ramp period.

EBITDA

EBITDA improves through the year as revenue grows faster than fixed costs. Q4 benefits from reduced marketing spend post-conference season.

Formulas

Key formulas

fxGross Profit = Revenue - COGS

Gross profit is calculated by subtracting cost of goods sold from revenue. At 70% gross margin, this company is in line with SaaS benchmarks.

fxEBITDA = Gross Profit - Total OpEx

EBITDA margin of ~20.8% shows healthy profitability. OpEx includes salaries, rent, software, and marketing spend across all departments.

fxCOGS = Revenue * 30%

COGS is driven as a percentage of revenue, covering hosting, customer support, and implementation costs.

Analysis

What makes this example good

Quarterly granularity gives enough detail for variance analysis without overwhelming complexity

COGS tied to revenue as a driver ensures the model flexes with growth assumptions

Clear separation between gross profit and operating expenses

EBITDA as the key profitability metric aligns with how investors evaluate the business

Headcount costs broken out separately from other OpEx for workforce planning

Customisation

How to adapt for your business

Replace the revenue line with your own growth assumptions or driver-based model

Add or remove departmental cost lines to match your chart of accounts

Switch from quarterly to monthly if you need more granular variance tracking

Add a depreciation line below EBITDA if you have significant capex

Layer in scenario versions (base, upside, downside) for board presentations

Common variations

--Monthly rather than quarterly columns for more granular tracking
--Department-level sub-budgets that roll up to this consolidated view
--Multi-entity consolidation with intercompany eliminations
--Zero-based budgeting where every line starts from scratch each year

Keep exploring

Related examples

Departmental Budget Example

A 80-person B2B SaaS company in London with £5.8M ARR. The VP Marketing is building the annual marketing budget for FY2026. The department has 10 people and a total budget of £1.2M covering team costs, paid channels, content, events, and software tools.

View example

Budget vs Actual Variance Report Example

A 60-person marketing agency in London with £4.1M revenue. The Head of Finance produces a monthly BvA (Budget vs Actual) report for the leadership team. This March report shows YTD Q1 performance against the annual budget.

View example

Rolling Forecast Example

A 75-person professional services firm in Birmingham with £3.8M revenue. The CFO has moved from static annual budgets to a rolling 12-month forecast that is updated monthly. This view shows the March update with Jan-Mar actuals locked.

View example

FAQ

Frequently asked questions

For most companies, quarterly columns with 15-25 line items strike the right balance. Monthly detail is useful for cash-sensitive businesses or during periods of rapid change. Avoid going below department level in the master budget -- use sub-budgets for that detail.

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