Here are 3 useful steps to help you improve your company’s budgeting and forecasting processes:
1. Integrate options for flexibility into your budget forecasting.
Flexibility is critical for improving any budget and yearly projections. Static or rigid budgets and forecasting can be the source for many difficult financial obstacles.
Some conventional projections that managers make annually can become outdated and erroneous before the first quarter is even over. However, these demands are still held in place and decisions of great impact are imposed on them. As a result, employees who are held responsible for reaching inaccurate goals or numbers are understandably frustrated. Such damaging scenarios can end up being very costly.
As an alternative, your methods should incorporate a review of your calculations and budget at the close of each quarter, or even each month. This practice will lead to making necessary adjustments to enhance overall accuracy and pave the way to better business choices.
2. Develop forecasts and budgets based on continuous change.
This option is flexible yet complimentary to traditional annual budgeting and forecasting practices that most companies follow, but without the rigid margins. Your business can routinely revise your forecasts and budgets centered on accurate and up-to-date business results, not what managers predicted what might happen several months ago.
The adaptive process supports using actual quarterly financial data to update your forecasts, which can normally stretch out for up to six quarters. Each quarter, you will adjust your forecasts for the following quarter – based on your most current quarter’s development. You will then revise your budget so that it demonstrates new and updated estimates.
With this progression, comprehensive monthly forecasting at the category level is only for the next quarter, not the whole year. Subsequent quarters’ plans have a wider range, since they are prone to be updated in the future. Rolling budgets and forecasts will allow you to better line up your budget to your strategic goals with increased accuracy to your approach.
3. Align your budget to your plan, instead of aligning your plans to the budget.
This concept is relatively simple but often neglected because of the discipline it requires from management and ownership. Spending choices are made based on actual revenue amounts, instead of prospects that the spending may, or may not, produce. Budgeting to plan recognizes the actual results that spending decisions will have on your company’s capital. For instance, an organization might have a chance to flourish by taking on a competitor or acquiring a large new client. Yet, the gain will require assuming substantial debt to finance the addition or purchase new inventory and equipment.
Financial arrangements based on your plan reflect how expenses will sway the budget immediately as well as on a long term basis. Put your plans into place accordingly. On the other hand, accommodating your plans to a set budget will just extend debt. Understanding what impact this has on your budget happens later. Budgets and forecasts are much too significant to be left vulnerable to flaws and inaccuracies.
Try these three steps to guide you to a budget upgrade and improved forecasting techniques. If your business can benefit from assistance establishing and managing an effective budget, don’t hesitate to contact Grobe and Associates CPAs, LLC at 608-210-1200.