Budgeting And Forecasting
Budgeting and Forecasting is a process for determining and mapping out an organization’s short-term and long-term financial goals.
Budgeting details how the plan will be carried out month to month and covers items such as revenue, expenses, potential cash flow and debt reduction. Traditionally, a company will designate a fiscal year and create a budget for the year. It may adjust the budget depending on actual revenues or compare actual financial statements to determine how close they are to meeting or exceeding the budget.
Forecasting takes historical data and current market conditions and then makes predictions as to how much revenue an organization can expect to bring in over the next few months or years. Forecasts are usually adjusted as new information becomes available.
Creating and implementing a sound budgeting and forecasting process helps organizations establish more accurate financial report and analytics , potentially leading to more accurate forecasting and ultimately revenue growth. Its importance is even more relevant in today’s business environment where disruptive competitors are entering even the most tradition-bound industries.
Specifically, companies are able to:
- Quickly update plans and forecasts in response to new threats and opportunities, identifying risk areas early enough to rectify issues before they are serious
- Identify and analyze the impact of changes as they occur
- Strengthen the links between operational and financial plans
- Better plan and predict cash flows
- Improve communication and collaboration among plan contributors
- Consistently deliver timely, reliable plans and forecasts, plus contingency plans, for a range of possible events
- Analyze variances and deviations from plans and promptly take corrective action
- Create a budget specifically for growth and having confidence in how much can be spent
- More accurately manage sales pipelines while tracking performance against targets
- Make more confident strategic decisions based on hard data, instead of hopes or guesswork
- Provide evidence of an organization’s future trajectory to potential investors and lending institutions based on multiple data sources and sophisticated analysis.