Every organization – big or small – is required to perform budgeting and forecasting to ensure that the business processes remain in the flow. Moreover, these cannot go wrong; otherwise, the result may turn out to be bad. However, businesses are required to make efforts to execute them correctly, efficiently, and effectively.
We provide you the ways that can improve your budgeting and forecasting exercise:
1. Define your goals
A company’s goals, objectives, strategies, and expectations are their key points of action. These must be clearly defined before venturing into the exercise of budgeting and forecasting. The budget must incorporate these points to avoid any conflicting situations between the budget and strategic aspects of the business. Budgets and forecasts, which are specific, clear, realistic, and in line with the organization’s targets, achieve more success.
2. Plan it before budgeting it
Build your plans before moving on to budgeting and forecasting. A budget based on random guesses will falter in the future, while if it is based on calculative plans, it results in better decision making. The owners and the top management must ensure that planning is not based on budgets, but it is the other way round. Budgets must follow the strategic plans and hence, must allow for contemplation in case of opportunities and threats.
3. Keep it updated and flexible
The situation of the company, trends, and challenges in the industry, and the economic scenario keep on changing. A static budget, which does not reflect these changes, leads to a more problematic situation and challenging times, while a flexible budget allows for changes. Therefore, companies must adopt rolling forecasts so that the numbers reflect the impact of these factors continuously. A quarterly or monthly budgeting works better as it allows us to make the necessary alterations in the budget as per the changes in the company.
4. Look for multiple scenarios
The budgeting and forecasting process must be conducted for various scenarios. Some positive and some negative trends and challenges may affect the company, and all these must be accounted for to develop different scenarios. The basic premise is to be as close as possible to the current economic trends and external market situations, which is difficult since the budget is based on predictions. Therefore, it is a prudent decision to develop optimistic, normal, and conservative scenario-based forecasts for different situations.
5. Involve more people
It is important to shoulder the responsibility of budgeting and forecasting with other teams. The departments or function teams can do the budgeting and forecasting for their team and submit to the finance team. Then the finance team can collate, check for alignment with company goals and expectations, and prepare the final version for the company as a whole. Therefore, communication with the other teams is a key prerequisite.
6. Every detail is important
A company must pay attention to all the small and big particulars and transactions happening in the company. These details may pertain to anything like economic scenario, competitive landscape, regulatory landscape, internal transactions, customer behavior, supplier relationships, and others. All these small details can influence the financials of a company and forecasts and hence, must always be tracked.
7. Include actionable steps
Budget and forecasts are just predictions and projections of the future based on historical data and trends. These forecasts may be conservative or liberal; however, making just forecasts does not help. This process must mention the actionable steps required to be taken to achieve those forecasted numbers. Only then, the idea will convert into a reality. Moreover, these action points must be shared and communicated across the company to walk in the same direction with the same enthusiasm.
8. Embrace regular monitoring and reporting
Organizations must allocate people to monitor the budgeting and forecasting process frequently and report the inaccuracies, if any. The exercise must be reviewed at every step to find misalignments and reported for corrections. With regular monitoring, the management can identify the glitches and complications before they become uncontrollable. The organization must ensure to put the best step forward for this exercise for a better ROI.
9. The right tools are vital
Multiple types of software are available that make the budgeting and forecasting process simpler and easier. It is helpful to have such software for this process. Cloud-based systems are the current trend as they can be accessed anywhere, are less time consuming, and generate interactive results. Such interactive software generates forecasts that are flexible, secured, reasonable, accurate, quick, and error-free.
10. Give it the importance it deserves
Budgeting and forecasting is a critical process for any organization. It cannot be treated as a small, irrelevant exercise of numbers. It deserves the same attention as a key client project gets. The organizations must discuss it well at the top level, formally initiate, plan the entire process, track at each step, report to the concerned authorities, and resolve in the case of disputes. Everyone in the company must be on the same page about the completion of the budgeting and forecasting process within the deadlines in alignment with organizational strategy.
Organizations must understand that though budgeting and forecasting are grueling tasks, but are a critical one that cannot go wrong. It has to go in the right direction.
Therefore, organizations must focus on the points mentioned above to develop accurate and efficient budgets and forecasts that will drive the forward march of the organization.
NR Doshi & Partners helps the clients in the budgeting and forecasting process. They have the knowledge and experience in this process for various industries and domains and various large and small organizations. They do the budgeting and forecasting as your business needs it and as your management wants it.
Call us if you are looking for help with your budgeting and forecasting exercise!