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Budgeting and Forecasting

By May 21, 2019 July 24th, 2019 No Comments

Having a forecast for your business is one of the most important tools to have in your arsenal. A forecast is one of the best ways to scale and grow your business to a place that you want it to be. Simply put, a forecast is an estimation of what your business will achieve in a set period of time. Forecasts are based on historical data and can tell management quickly if changes need to be made to produce the best outcome.

You may be saying, “but I have a budget in place now, what’s the difference?” A budget is an expectation of what you want your business to achieve. A forecast is an estimation of what your business will achieve in a period of time. The key difference between the two is that the budget is a plan for where a business wants to go, while a forecast is the indication of where it is actually going. Having a budget is good, having a forecast is great. Each is important in their own way but the insight a forecast brings can be very useful to determine a businesses current direction.

To determine a business forecast, financial summaries need to be obtained and analyzed. High level summary financials with projections usually include a full-set of financials encompassing the income statement, balance sheet, and cash flow statement that are derived from historical results plus forecasted periods.

A weekly cash flow forecast takes that a step further and more in depth. Weekly cash flow forecasts estimate the timing and amount of cash coming in and cash going out. This extremely in depth look at cash flow breaks down the company to a very elemental level and allows business owners to really understand how their business is doing and if they will have enough cash to meet short-term obligations such as payroll and vendor payments. This is especially important if customer payments are only periodic. This method uncovers issues quickly which results in rapid resolutions and more success.

Creating a monthly forecast and weekly cash flow forecasting is one of the services that we offer our monthly clients. Something that sets our services apart from other accounting firms is that we forecast all the way through the cash flow statement, whereas a lot of firms will only project an income statement. When creating a forecast, we first determine a sense of where you are currently in your business. We then record what you are wanting to achieve in the next three years. This leads us to setting a budget. As we explained above, a budget is a plan for where you want your business to go. Setting a budget will bridge the gap between where your business is currently and where you want it to be. We then continue to monitor the progress from implementing this plan. That would be where the forecast comes in to play. Using the information we have estimated in the forecast, we can adjust the budget and plan accordingly. Lastly we fine tune the process with weekly cash flow forecasts. This helps us meet short term cash needs and completely understand how our plan is working.

We strive for our clients to be successful in their endeavors and know that having an accurate and in depth forecast will propel them forward.