• US English
  • UK English
UK: +44 845 591 27 24 Call

Budget Forecasting Tips

In accounting, as in all fields, some tasks are more harrowing than others. Among the most complex and potentially frustrating foes to be faced is a two-headed behemoth known as budget forecasting. Done properly, it can help map out a rosy future for your business—and if it’s not, the path may be dark and difficult to navigate.

Fortunately, you can improve your chances of success by following some easy suggestions for fine-tuning your budget forecast.

What Is Budget Forecasting?

While it’s often treated as a single process made up of interchangeable terms, budget forecasting relies on two distinct processes that work together to support effective and accurate planning for businesses of all sizes, from proprietor-based small businesses to massive international conglomerates.

Budgeting is a highly detailed outline of your business’ projected financial performance over a given period of time (often a month, quarter, or entire year). It provides a view of your organisation’s financial position and contains information about estimated revenue and expenses, cash flow, and more, all drawn from your company’s financial reports.

Budgeting is a management tool that provides a basis of comparison; if a company is consistently over budget, is it due to inefficiency, extra business, or a more complex problem like invisible spend? If the company’s under budget, are all resources being used with peak efficiency, or could those assets be used in pursuit of greater profit-making opportunities?

Forecasting is a higher-level version of budgeting used to create both short-term and long-term projections for major revenue sources and expenses. Revenue forecasts, for example, can help you plan for necessary adjustments to staff, product development, and inventory levels. The forecasting process may be performed top-down (moving from a macro view to increasingly focused segments) or bottom-up (moving from individual segments to create increasingly complex ones detailing the interaction of all systems within the paradigm as a whole).

Forecasting is used to make educated guesses about your company’s performance as compared to the goals set in your budget. Long-term financial forecasting can provide insights needed for strategic planning and risk management over months, years, or even decades. Short-term forecasts are usually more tactical in nature and used for operations planning.

You can think of your budget as your company’s financial goals, and forecasting as a review of your actual results in pursuing those goals. Together, they create a planning process that can help you set, and achieve, a healthy bottom line.

“Strive to keep your annual budget cycle at 30 days or fewer to ensure your plan isn’t out of date before it begins. Use rolling forecasts and budgets based on real-time updates to keep your quarterly forecasts in touch with current conditions, and keep your overall forecast and budget in line with your evolving goals.”

Best Practices for Budget Forecasting

In a constantly changing market, every business benefits from a carefully considered budget process. Making small improvements to your budget forecasting can yield rich dividends.

Strive for Flexibility, Agility, and Consistency

While we’re all familiar with common admonitions about setting a budget and sticking to it, a little flexibility can help your company respond to current market conditions more effectively. The only constant in business, as in life, is change, so rolling with the punches can help you avoid costly errors made in the name of adhering to out-of-date or now-inaccurate information.

A sprightly and efficient approach can help cut costs and improve your ability to reach the goals you set. Strive to keep your budget cycle for the fiscal year at 30 days or fewer to ensure your plan isn’t out of date before it begins. Use rolling forecasts and budgets based on real-time updates to keep your quarterly forecasts in touch with current conditions, and keep your overall forecast and budget in line with your evolving goals.

Of course, while it’s good to adapt to change, it’s still important to keep the “plan” part of “financial planning” in mind. Build your budget directly from your plan, informed by your true revenues, and give yourself a bit of wriggle room to pursue opportunities if certain conditions (e.g., higher performance or profits than expected) are met. 

Be Open and Realistic

This one’s simple in concept, but sometimes challenging in execution: keep it real. While it’s certainly possible for the stars to align and create wonderful opportunities for new products, markets, and profits, your budget and forecasts need to be firmly grounded in what is, not what might be. Set realistic and distinct goals for both profit and cash flow; tracking both of these critical metrics will make it easier to manage your financial position as a whole.

Use constant and consistent communication to ensure everyone involved in the budget forecasting process is always up to date and has access to the data they need (automation and AI-driven software packages make this much easier). And if your forecast reveals your cash flow is tanking, business conditions have changed, or budget goals aren’t being met, keep all the stakeholders in the loop. Making a new plan is much easier when everyone is on the same page of the balance sheet.

Don’t Lose the Forest for the Trees

Whether you go top-down or bottom-up, make sure you’re not getting so bogged down by details that may change in the near future that you neglect more important macro-scale goals.

Details become much more important in the short-term; build a plan, budget, and forecast that supports your organisation’s major revenue and performance goals, and avoid information overload by adding detail as necessary over the lifecycle of the budget. 

Automation and Analytics are Essential

Say goodbye to that dusty old Microsoft Excel spreadsheet and embrace the power of artificial intelligence and machine learning. Cloud-based, centralised software solutions simplify and improve the accuracy of every area of financial planning—including budgeting—and automate basic tasks, grant levelled access and approvals, and improve visibility for all stakeholders while slashing human error and rogue spend. Interconnected, multi-platform access makes it easier to track, discuss, and analyse actual performance and make changes to the plan as circumstances dictate.

Analytics improve current and historical data management while simultaneously streamlining decision-making and pattern recognition that can, in turn, help create more accurate estimates of revenue and identify opportunities and challenges that require immediate action.

The Future Looks Bright

Crafting an accurate and effective budget can be challenging. But if you are willing to tweak your budget forecasting process to accommodate your company’s long-term needs while making short-term adjustments to keep up with current events, you can build yourself a budget that’ll help your company reach, or even exceed, its financial and performance goals.

Get Better Information To Inform Better Budget Forecasts With PurchaseControl

Find Out How
image_pdfDownload PDF

Business is Our Business

Stay up-to-date with news sent straight to your inbox

Sign up with your email to receive updates from our blog

Schedule A Demo

Enter your email below to begin the process of setting up a meeting with one of our product specialists.