Budgeting is a strategic exercise. It is the process of projecting the revenues a business wants to achieve for a future period. Though budgets are usually created for a year, some businesses operating in fast-paced environments may want to adjust their budgets throughout the year as business conditions change. Budgeting analyzes the variance between forecasts and actual performance.
Financial forecasting involves analyzing historical trends in order to predict a business’s future financial performance. Financial forecasting helps management determine how they should allocate budgets for a future period. It provides important information required by management to take key business decisions. Forecasts are updated regularly-usually whenever an operation change occurs or top management tweaks the business plan.
Budgeting vs Forecasting: Key Differences
A budget is created to meet a business goal such as a quarterly or yearly growth goal. The purpose of financial forecasting is to determine if the budget targets will be met. A budget is created for a specific period using historical data. A financial forecast analyzes a company’s current financial situation. Financial forecasting may be done as frequently as every month whereas budgeting may not be done more than once every three months.
Budgeting and financial forecasting help businesses formulate strategies and plan for the future. They are powerful tools that organizations can use to establish a business roadmap. When done correctly, budgeting and forecasting can set a business up for success.
Here are some tips to improve your budgeting and forecasting.
Keep it Flexible
Rigid budgets and forecasts will get you nowhere. Make sure your budgets and forecasts are flexible and can adapt to changes in the business environment. If you continue to use old, dated data for decision making, you may end up making faulty and poor business decisions. Building flexibility into your budgeting and forecasting is a great way to ensure your managers have access to accurate and up-to-date information that paves the way for better decisions.
Get Every Person on Your Team Involved
Make budgeting and forecasting a team effort. Involve all departments and units to ensure that all teams get an opportunity to communicate their needs. When you make budgeting and forecasting a team exercise, you gain different perspectives. People from different teams can provide the data that you need to make accurate forecasts and set realistic budgets.
Because budgeting and forecasting affect all aspects of your business, you will want to keep an open line of communication with all business departments. This helps minimize issues and ensure that your operational strategy is aligned with your business strategy.
Implement Rolling Forecasts and Budgets
We should update rolling forecasts and budgets based on present results, instead of historic data. With this process, forecasts are created for every quarter and not the entire year. Basing forecasts and budgets on present data improves budgeting and forecasting accuracy. Rolling forecasts help ensure that your budget better aligns with your plan.
Rolling forecasts allow you to stay on top of any changes that can affect your business. With rolling forecasts, you will have ample time to review and rethink your plan based on any new data.
Budget to Your Plan
Create a plan and set your budget according to it. When making spending decisions, consider your actual and current revenue, instead of the opportunities these decisions can lead to. When you plan your budget, you are able to deal with the potential impact any spending will have on your business.
Use the Right Tools
You cannot rely excessively on Excel or other spreadsheet software for budgeting and forecasting due to its limitations when it comes to creating a workflow. It was not meant to be a collaboration tool and hence, fails to ensure cross-team collaboration.
There is a single password for an Excel document that should be shared with all users which can lead to privacy and security issues. Excel users are prone to costly mistakes when using complex or unfamiliar spreadsheets or exporting data. Also, reviewing and correcting problems in Excel can be a time-consuming exercise.
If you still use Excel to format and organize data now is the time to switch to budgeting and forecasting software. Synoptix Advanced Budgeting and Forecasting comes loaded with features that help reduce planning complexity and ensure more precise and detailed planning. Other benefits include less errors, cost savings, and improved security.
Set Profit and Cash flow Goals
Set profit and cash flow targets. Every business needs to track these important metrics to ensure their budgets are accurate and useful. Profit and cash flow targets should be realistic or you may fail to achieve your financial goals.
Be Clear About Your Goals
The purpose of forecasting is to predict your company’s future financial performance. When done correctly, forecasting helps you understand the impact of business decisions. If you aren’t clear about your company’s goals, you may struggle to accurately forecast its financial future. Make sure you and your forecasting managers have a clear understanding of what drives effective forecasting or your forecasts will be just random guesses.
When budgeting and forecasting for a fiscal year, make sure everything is accounted for. Don’t skip over any detail no matter how minor it may seem. Attention to details matter. Remember even seemingly minor details can have significant impacts on your business’s finances. Stay on top of market trends, and closely observe consumer behavior and your competition’s every move as you finalize your forecast.
Need powerful manufacturing budget software? Synoptix Software has got you covered. Our software solutions generate actionable business insights for better decision making. To learn more, call 801-254-4503.
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We want to provide you with an update on the Log4J vulnerability that was identified this weekend as it relates to your Synoptix installation. The short answer is that there should be no vulnerability issues with Synoptix. Synoptix no longer uses Log4J. Version 7 did use version 1.2 of Log4J (which was not vulnerable), and should therefore also be clear of any vulnerability issues related to Log4J version 2.0-2.14 (which was identified this weekend as having vulnerability).