Budgeting & Forecasting for Small Businesses
A budget is a dynamic, detailed plan of operations used to outline a company’s anticipated revenue and expenses for an upcoming period of time. A financial forecast is an estimate of a company’s future performance based on current and historical information. A budget is a roadmap that outlines where management wants to take the business. A financial forecast tells you whether your company is reaching its goals and where it is heading.
As a business owner, the success of your business depends on the effectiveness of your planning process. As such, it is important to allocate time to create and manage a budget and a forecast, and to regularly monitor your company’s performance to make sure it is achieving financial and operational goals. Budgeting and financial forecasting should work in tandem with each other. All significant business decisions should stem from your company’s budget and forecast.
Budgeting and forecasting can help you predict your business’ sales, expenses, and cash flows. They can also provide information to determine cash requirements, financing needs, inventory, production volume, and logistics.
The following are some best practices when implementing a budget and forecast:
Be Flexible
You have spent a lot of time budgeting and forecasting and while you should be following the plan, it is important that the plan factors in changes and adjustments throughout the period of time it was created for. Flexibility allows for more accuracy as the time progresses and better results for your business. If the pandemic taught us anything in the last two years, it was to be flexible and to be able to adjust with speed and agility to remain competitive.
Set Clear Goals & Involve the Team
Involving the team will allow for more realistic goals, better planning, and increased commitment to the forecast. It sounds simple, yet many businesses fail at establishing and communicating clear goals. Budgeting should not only include short-term goals; it should serve as an analytical piece for your growth strategy. Ensure that the budget and the forecast are aligned with your company culture and its core values.
Technology - Automation
Cloud-based accounting software not only provides accessibility, it also increases efficiency by analyzing previous years and current plans. These tools can generate automatic reports, produce forecasts that are more accurate, identify opportunities that require immediate attention, and give back time so that your leaders are spending more time managing the business instead of managing the data. To read more on how businesses have cut their budget creation time in half, visit our post shared in December. Automating monthly reports allows for information to be distributed in a timely manner to all departments and enables contributors to easily update budgeting and forecasting throughout the year.
Budgeting and forecasting are crucial to the success of your business. Forward-thinking business owners understand that investing time and effort in generating these plans are necessary to compete. At CPA by Choice we understand that this process can be extensive, if you are unsure on how to get started or need assistance preparing these reports and communicating them to your organization, contact us. We are available to answer your questions, feel free to call us or send us a message.