Businesses are constantly planning strategies that, when implemented today, will facilitate growth in the future. Two key tools used in this regard are budgeting and forecasting. While the two may seem like similar concepts, there are certain differences between them.
Budgeting quantifies and assesses the viability of the plan while forecasting forms a better understanding of the future of the business with the use of historical data. These tools have a significant impact on the strategies developed and implemented by the top management of any business.
The benefits of budgeting and forecasting include being able to identify risks early and taking control of what the future holds, being able to plan and predict cash flows, making confident strategic decisions, and having insights to share with potential investors.
Given these benefits, it is clear why it is useful to consider these tips for successful budgeting and forecasting when planning the future of your business.
- Goals & Milestones
Clear communication between key personnel of the organization is important when setting the goals and targets of the business. If key personnel does not agree on where they see the business in a year, for instance, planning strategies to reach those goals can be a challenge.
Communicating with each department early on in the process and constantly involving them in the process can also allow the key personnel of the business to have a better insight of how each department is performing and their concerns regarding the future of the business.
An accounting firm may also suggest setting achievable milestones that are clear, realistic, and easy to track but are also flexible. Milestones are important for successful budgeting and forecasting as they guide strategies and give businesses a better idea of where they stand in terms of achieving long-term objectives.
- Flexibility is Important
You may have the best business advisor and the most accurate data about past and present performance, but the future is unpredictable and budgeting and forecasting cannot take into account every circumstance your business has the potential of facing in the future.
In 2019, for instance, not a single business around the globe could have predicted what the year 2020 had in store for everyone, individuals and businesses alike. The budgeting and forecasting done by businesses could not have predicted a pandemic that would cause several countries and economies to shut down for significant periods of time, impacting various industries.
This is why it is important to be flexible with your budgeting and forecasting and leave room for an unexpected turn of events, whether it is positive or negative.
A key way to ensure your budgeting and forecasting is flexible is by rolling out forecasts and budgets on a quarterly basis as opposed to a yearly basis. This will give you time to make any changes and adjustments to the forecast and budget before you implement.
- Short-term & Long-term Planning
Budgeting and forecasting are typically seen as long-term plans that will determine the performance of your business in three years’ time, for instance. This is important as long-term planning is vital to the sustenance of an organization and allows the key personnel as well as various teams of the organization to look ahead.
However, short-term planning is also important. Where the business stands in five years’ time depends on the planning done today, three months from now, a year from now, and so on. This is why you need to consider both short-term goals and strategies as well as long-term goals and strategies.
If you obtain bookkeeping services from an accounting firm, you can also obtain advisory and reporting services from them to help you with your planning, whether it is a strategy that will impact the day-to-day operations of the business or expansion two years down the line.
- Regular checks and updates
Being flexible with your budgeting and forecasting will not serve a purpose if you do not carry out regular reviews and checks on your strategies and business performance to ensure your cash flow is healthy and your forecasting is accurate.
Updating your strategies or adjusting your forecasts to take into account any changes to business performance or the industry that you did not take into account when preparing the budget and forecasts will make your strategies more effective and relevant.
Regular reviews will also give you a better idea of how your business is performing at present and the milestones you are achieving.
