How PE-backed companies run the annual budget
In short
- The sponsor sets targets from its investment thesis. Management builds the budget up from each location's drivers, and the two meet in the middle.
- For a December year end, the work usually runs from the third-quarter board meeting to board approval in December.
- Your credit agreement may require the budget within 60-90 days of year end, and its covenants use their own definitions.
- Once approved, the budget stays fixed. You report against it every month and track a separate reforecast.
The calendar
Expect two to three months of work. The AFP's 2026 benchmarking survey puts the average at 8.7 weeks, and in the FP&A Trends 2025 survey, 28% of companies needed three to six months. For a December year end, a common pattern runs like this:
- Third quarterTargetsAn outline at the board meeting
- October-NovemberThe buildEach location, from its drivers
- DecemberBoard approvalThe final budget, locked
- January onEvery monthActuals against the budget
Top-down targets, bottom-up budgets
The sponsor arrives with targets tied to the investment thesis and the exit model behind the deal: revenue growth, EBITDA and cash. Management builds the budget up from the business, location by location. The sponsor's team then checks the build against its own model.
The two rarely match on the first pass. When the build comes in short, agree on what closes the gap, such as price, new locations, hiring or marketing spend, and who owns each piece. A plugged number with no plan behind it tends to come back as a variance by spring.
In the FP&A Trends survey, 38% of companies still budget as last year plus a percentage. Across many locations, that hides which ones drive the change.
Build it from drivers
A driver-based budget starts from the operating numbers that produce revenue and cost, not from last year's line items. For a multi-location business, the drivers are usually the same few, set for each location and each month:
- Locations open, with a ramp for each new one.
- Volume: visits, appointments or tickets.
- Price: average revenue per visit, after discounts and memberships.
- Labor: hours scheduled against volume, or labor as a share of revenue.
- Each location's fixed costs: rent, utilities and software.
Only 15% of companies in the FP&A Trends survey budget fully from drivers. Those teams rated their forecasts good or great 77% of the time, against 27% for teams with basic or no drivers. The payoff comes during the year: when a location misses, you can see whether volume, price or labor moved.
Drivers need history: 12-24 months of each location's volume, price and labor, defined the same way. That history usually sits in the booking or point-of-sale system, payroll and the books, rarely in one place.
What the board and your lenders see
The board, where the sponsor's partners sit, reviews a draft and approves the final. Expect to show profit and loss by month and by location, the walk from this year's EBITDA to next year's, capital spending, cash flow and the KPIs tied to the thesis.
Your lenders want the budget too. Credit agreements commonly ask for it within 60-90 days of year end, prepared in good faith on reasonable assumptions. Test covenant headroom in the budget before the board sees it. Leverage covenants often step down over the life of a loan, so a budget that clears this year's test can fail next year's. Run the test on your credit agreement's definitions, not the management profit and loss.
After approval
Once approved, the budget stays fixed for the year. It is the yardstick for budget against actual reporting each month, by location, with comments on the variances. Our guide to what private equity owners expect in a monthly report covers that package.
Forecasts move; the budget doesn't. In the FP&A Trends survey, 46% of companies forecast monthly and 40% quarterly, often as a 3+9 or 6+6: actuals so far plus a fresh forecast for the rest of the year. Keep the reforecast beside the budget, not in place of it. Some sponsors re-base the budget after a large miss, so agree on how yours handles one before the year starts.
Before you start
- Ask your sponsor for the targets and the calendar before the third-quarter board meeting.
- Pull 12-24 months of history by location and month, defined the same way.
- Agree on each driver with the location leaders who will own it.
- Test covenant headroom by quarter on your credit agreement's definitions.
- Set up budget against actual reporting by location before January's close.
Need the history to build it from?
We pull each location's history from your books, payroll and booking or point-of-sale systems, by month and defined the same way. Once the budget is approved, every monthly report shows it against actuals.
See the monthly package