Why Q2 Is the Right Time to Reset Your Budget Plan for FY 2025–26?

If you’re wondering why you need to revisit your budget halfway through the year, take a cue from this corporate giant.

Nestlé India reported a 13.4% drop in profit year-on-year, driven by rising commodity costs — and they’re far from alone. Across sectors, from FMCG to manufacturing, companies entered FY 2025–26 expecting smooth sailing, only to hit margin pressure, cost surprises, and slower-than-expected demand in the first quarter.

So, ask yourself —

• Are your cost assumptions still holding true?

• Has your revenue forecast absorbed the latest demand signals?

• And more importantly, what happens if you wait until Q4 to fix what Q1 already revealed?

A Q2 budget reset provides the opportunity to adjust costs, cash flow, and capital allocation based on actual performance data. Acting now ensures the second half of the year is guided by informed decisions rather than delayed corrections.

What Is a Q2 Budget Reset

A Q2 budget reset does not require overhauling the full financial plan. It is a structured review process that revisits underlying assumptions, reallocates resources, and updates forecasts based on Q1 actuals. The objective is to ensure that the remaining quarters of the fiscal year reflect operational realities rather than static projections.

The reset typically follows a systematic process—variance analysis, followed by scenario adjustment and finally reforecasting—a framework consistent with Finmark’s “7-step” re-forecasting model.

As noted by Verified Metrics, “Organizations can review and re-forecast their budget monthly or quarterly to reflect significant changes between budget and actuals.” This discipline is particularly relevant in India’s current business environment, where 91% of firms plan to reduce their tax and finance budgets due to sustained cost pressures. In such conditions, assumptions made at the start of the fiscal year can quickly lose accuracy, making a Q2 reset a practical necessity rather than an optional review.

For CFOs and finance teams, this forms the foundation of CFO-led financial planning — a disciplined, insight-driven process that ensures agility without overhauling the entire annual plan.

Whether you’re a growing enterprise or a smaller business still scaling operations, a mid-year reset can be the difference between reactive fixes and proactive growth — especially when budgeting for startups and SMEs requires greater flexibility.

Why Q2 Is the Best Window to Realign Budgets

Q2 provides the ideal balance of insight and action time for a budget reset. By the end of Q1, you have a full quarter of actuals to inform trends, yet still enough months left in the fiscal year to make meaningful adjustments. Delaying the reset reduces leverage: corrective measures in Q3 affect only Q4, limiting their impact.

Key reasons Q2 works best:

• Data-informed decisions: Q1 results reveal revenue trends, cost variances, and operational shifts.

• Decision horizon: Adjustments made now influence both Q3 and Q4 outcomes, maximizing effect.

• Lower forecast error: Companies using rolling forecasts consistently show better accuracy; Abacum reports 22% lower errors among firms maintaining forecasts for 3+ years.

• Material focus: Adjust only significant line items to ensure the reset is strategic, not unnecessarily granular.

In India, this timing is especially critical. Inflation, commodity price swings, GST changes, and energy costs can quickly make April assumptions obsolete. Nestle India experienced a Q1 profit decline due to rising input costs, illustrating that companies delaying budget recalibration risk missed opportunities and reduced corrective impact. A Q2 reset allows leaders to respond to such shocks in time to influence Q3 and Q4 results.

What to Review During a Q2 Budget Reset

When you hit mid-year, it’s time to cut through assumptions and focus on the levers that really move your business, revenue, costs, payroll, capex, cash flow, and risk scenarios. A structured review in Q2 sits at the heart of CFO-led financial planning, helping leadership link financial data to strategy. These are the areas where small adjustments now can have a big impact on the second half of your year.

Q2 Budget Reset: 6 Critical Areas to Review

1. Revenue Assumptions - Compare Q1 actuals vs forecast; adjust for confirmed orders, cancellations, and seasonal trends.

2. Cost / Input Prices - Review raw material, logistics, and energy costs; test impact on margins and pricing.

3. Payroll & Headcount - Check hiring vs plan, attrition costs, skill premiums, and revenue per employee trends.

4. Capex / Investment Plans - Revalidate project timing, ROI, and whether to accelerate, defer, or reprioritize spend.

5. Cash Flow & Working Capital - Analyze DSO, DPO, and inventory days; optimize collections, payments, and liquidity buffers.

6. Scenario Sensitivities - Stress-test best, base, and worst-case scenarios for revenue, costs, and margins to define action triggers.

1. Revenue Assumptions

Revenue is the first lever to evaluate during a Q2 budget reset. Start by comparing Q1 actuals against the forecast: for instance, if projected sales were ₹50 crore but actuals came in at ₹46 crore, that 8% shortfall highlights the need for corrective action. 

Adjustments should incorporate confirmed new orders, cancellations, and seasonal trends; for example, a consumer goods company may see a 12–15% uplift in demand during the festival quarter, which must be factored into the revised plan.

Why it matters: revenue assumptions drive resource allocation, cash flow, and margin projections. Misjudging them can either create liquidity stress or result in unnecessary cost containment. Companies that adopt quarterly re-forecasting, instead of relying solely on annual budgets, reduce forecast errors, enabling faster, data-driven decisions that protect profitability and growth.

For smaller firms, especially those focused on budgeting for startups and SMEs, quarterly forecasting prevents liquidity gaps and costly surprises.

2. Cost / Input Prices

Are your input costs still in line with the assumptions you made in April? 

That’s the first question to ask. In India’s volatile market, raw material and logistics costs rarely stay stable beyond a quarter. 

For example, the CPI for fuel and light rose 7.9% YoY in August 2025, while industrial raw materials like aluminum and steel fluctuated nearly 10–12% in the same period. Those swings can quietly erode your gross margins if not adjusted in time.

A Q2 review helps you test how these changes affect your cost structure. 

Should you re-negotiate supplier terms? Should energy surcharges be factored into Q3–Q4 pricing? 

Even a 3–4% movement in input costs can distort your projected EBITDA for the year. Businesses that run mid-year resets often discover cost drifts early enough to correct pricing or defer non-essential spend before it becomes a P&L hit.

3. Payroll & Headcount

Are your people costs still aligned with the pace of your business? By Q2, your actual payroll data tells you a lot more than projections made in April. Many companies discover that their wage bill has crept up quietly, through unplanned hiring, retention bonuses, or inflation-linked increments.

Here’s what to review during the reset:

• Hiring vs. Plan: Did the roles you budgeted for in Q1 actually materialize? Or are there open positions that can be deferred to protect cash flow?

• Attrition Impact: Has higher turnover increased backfilling and onboarding costs? Even a 5–6% attrition variance can alter your annual payroll spend.

• New Roles or Skill Premiums: Are you adding high-cost roles in data, finance, or tech? 

• Productivity Alignment: Is revenue per employee trending up or down? A dip signals that hiring is outpacing growth, and it’s time to rationalize.

Q2 is the right moment to reset, early enough to control payroll drift, but late enough to see real trends. Waiting until Q4 makes it almost impossible to recover overshoots without layoffs or hiring freezes.

4. Capex / Investment Plans

Let’s say your FY plan assumed ₹20 crore in capital spend—new machinery, a plant upgrade, or tech implementation—spread evenly across quarters. But Q1’s execution delay already pushed ₹6–7 crore into later months. The question now isn’t just when you’ll spend it, but whether it still makes sense to spend it at all.

A Q2 reset helps you revalidate each investment’s timing and ROI. Some projects may need to be postponed to preserve cash, while others, like automation or efficiency upgrades, might need acceleration to offset rising costs. The aim isn’t to slash capex, but to ensure every rupee still fits your mid-year reality.

5. Cash Flow & Working Capital

In your Q2 reset, liquidity deserves its own spotlight. You’re not just checking the balance in your bank, you’re reassessing how efficiently cash moves through your system. Start by comparing your DSO (Days Sales Outstanding), DPO (Days Payable Outstanding), and inventory days against both Q1 actuals and last year’s benchmarks.

• If your DSO has stretched from 52 to 61 days, it signals that collections are slowing, tying up cash that could fund growth or capex. 

• On the other hand, if DPO has shortened, it means you’re paying vendors faster than necessary, compressing your working capital buffer.

Even small shifts can add up: a 5-day increase in DSO for a ₹100 crore business can lock up nearly ₹1.4 crore of cash.

Your Q2 reset is the point to correct these trends, tightening receivables, renegotiating payment terms, or optimizing inventory levels before they strain liquidity in the second half of the year.

6. Scenario Sensitivities

Q2 is the right time to stress-test your assumptions. 

Ask yourself — what happens if input costs rise another 5%? Or if sales slip 10% in Q3? Building best, base, and worst-case scenarios helps you quantify risk before it hits your books.

A Q2 reset often reveals how minor assumption shifts can drive disproportionate impact. A 5% revenue shortfall on a ₹100 crore plan, for example, can erode net profit by ₹2–3 crore if costs are unchanged. Mature FP&A teams anticipate such sensitivities through scenario modeling, activating predefined responses in spend, pricing, or credit terms rather than reacting late in Q4.

Key Takeaways

Resetting the budget in Q2 isn’t backtracking; it’s refining. Mid-year performance data gives leaders the clarity to redirect resources where they matter most, a discipline that keeps financial performance steady in unpredictable markets.

Here’s what every business leader should take away:

• Use your Q1 actuals as a factual base.

• Reforecast selectively — focus on material variances that move the needle.

• Link every adjustment to liquidity and risk, not just P&L optics.

• Factor in India’s cost volatility — from raw materials to compliance shifts, assumptions age fast.

Done right, it strengthens your overall budget planning FY 2025–26 and sets the pace for the second half.

At CFO Bridge, our FP&A experts guide organizations through CFO-led financial planning and structured mid-year resets. We help you identify where to pivot, where to protect, and where to double down. With a structured reset framework and data-led scenario testing, you gain a clear, defensible outlook for investors, lenders, and internal stakeholders.

Contact our expert to learn how this reset can strengthen your FY 2025–26 performance trajectory.