Budgeting and forecasting is famously significant and infamously tedious for any company irrespective of the type or size of a business. Even though technology has made the processes much easier, there is still a lot of skill and experience required to prepare accurate and useful budgeting and forecasting statements. This immense requirement also creates pressures on finances and funding as well as other non-monetary resources, which is why it is doubly important to maintain efficiency and productivity in these departments. Let’s look at the top seven ways in which you can improve your budgeting and forecasting.
1. Plan and budget, not the other way round
While it may make more sense to prepare your budget first and then go towards planning your expenses and any potential investments, the better way would be to decide your important spending and then prepare budget. When you are prepared for the expenses that are necessary for growth, you will be in a better position to see improvement areas.
2. Keep spending for later
While it is better to decide on objectives before budgeting, that does not automatically mean to spend on those objectives. Planning and spending are two completely different things, and keeping an expense on hand is useful while throwing away money without understanding your actual capacity cushion can create more problems. Putting this with the previous point, you get to decide on your significant expenses, then realize your actual financial capacity, and if needed arrange required funding as well.
3. Keep the process flexible
Another good way to manage your budgeting and forecasting is to keep the preparation of budget frequent and flexible. If you have a rigid schedule and method of preparing your financial statements, you will probably miss out on many opportunities to make big or small investments, improve your revenue inflows, or even stop leakage of resources. Business environments are volatile and require planning accordingly. Basing your day to day decisions on whims or guesswork about your finances is not ideal and often disastrous.
4. Communicate frequently
When we talk about budgets and forecasts, we might mistakenly think about just the accounting and finance departments. However, from sales and marketing to call center and after sales services, every department has specific objectives, they all cost money, and they all eventually contribute to your revenue and profits. This is why it is imperative to keep communication lines open with all departments and have the targets and challenges of all segments of business on the same page while making long-term strategies with budgeting and forecasting. If you have outsourcing partners on board for different departments, that will make your job considerably easier in this regard but you need to keep all departments on board either way.
5. Be clear about your objectives
This might seem like a no-brainer with all the previous points, but this is important for more than planning and spending of budgets. When you are planning your business goals, you also need to know the consequences of those plans. For instance if you want to open a new showroom for your business in a very prime location, make sure that you are not doing it just because your competitors might have done so. A new showroom will not only require one time massive investment, but will be a constant addition to your direct and indirect expenses. Similarly, not making an investment might seem an expensive option but it might bring back much more in cash flows for a long time. That is what forecasting is precisely about. Include that part into your budgets too and you will have much better planning on your hands.
6. Be prepared for contingencies
This is something that any accountant or financial analyst worth their salt will advise you while you are keeping track of your finances and planning your future. Take cues from other players in the industry, keep track of any changes in legal regulations or change of policy, and have communication lines open with industry experts. Despite the fact that there are always only so many resources to work with, it is always advisable to keep some safe for contingency purposes.
7. Get external help
Bigger companies have in-house departments for preparing frequent budgets and forecasts, but smaller companies can always hire outsourcing companies for much less cost and still have all the benefits. This point is significant in terms of maintaining communication between different departments as well as putting your contingency savings to good use. When an external party is handling one or more departments within your business, communication becomes easier. Likewise, if you have experienced finance and investment experts on board, they can help you with possibly investing the extra money into liquid resources so that none of your resources are completely idle.