January 30, 2017

Why are Budgeting and Forecasting Important to Your Business?

by Colin Quinn

Budgeting and forecasting are the two single most important undertakings you can do for your business. They are also two of the least popular jobs people rarely look forward to starting. Taking the time to make an workable budget and to accurately forecast can mean the difference between failure and success for your business.

When done poorly, budgets and forecasts not only become futile, but they also become increasingly misleading. When done properly, however, both your budget and forecast become indispensable tools for business and can help guide you toward achieving your goals and meeting your highest requirements.

Provides Clear Actionable Steps

A solid budget is an action plan that each member of your team can follow. It’s more than just a list of expected incomes, expenditures, and goals. It’s a clear, concise plan for achieving expected revenue or profit goals and overcoming possible risks, challenges, and setbacks.

When creating your budget, do not only include what you expect to achieve by a certain time, but also explain in clear step-by-step details the process of how you plan to achieve it. Delegate specific tasks and responsibilities to each team member so that everyone is helping make these expectations and goals a reality. Without a clear plan of action, your budget is essentially nothing more than hopes and dreams.

Synthesizes Data and Reveals Trends

Although forecasting allows you to take large amounts of data from the previous quarter, month, or year and compile them into meaningful information that you can then use to reveal key trends in your business. If compiling all of that data together sounds like a formidable task to you, don’t worry, you can find affordable planning, budgeting, and forecasting software that makes the process much simpler and more manageable.

Through this combination of data, you can discover what is and is not working. You can also easily detect whether or not you are on track and pinpoint exactly where changes need to be made. Data is only useful if you can interpret and read it. The right forecasting tools and the right methodology can help you get the most out of your data.

Helps Your Company Stay on Track to Meet Goals

Even if you have created the perfect budget to guide your company toward its goals, you won’t make it to the “end zone” without regularly monitoring your performance. You can’t simply finalize the budget and then ignore it until the same time the following year.

With regularly forecasting, comes regular monitoring. Monitoring your company’s progress to make sure you are still on track to meet your end of the year goals is a must. To be even more effective, forecasting should be done on a quarterly or if your really good a monthly basis. At these times, you can use the data trends to make any minor (or major) changes necessary to your budget so that it continues to be consistent and realistic.

Allows You to Detect Potential Problems or Challenges Early

With data and regular forecasting, you can recognize problems and challenges before they become serious issues. This can potentially save a lot of time, money, and stress by lessening the damage caused when your company encounters inevitable problems and setbacks. This is why efficient and detailed forecasting should be done on a quarterly or monthly basis.

Keeps Everyone Moving in the Same Direction

Harvesting the combined powers of precision budgeting, planning, and forecasting, will enable you to easily make sure everyone is on the same page. This means that everyone knows their role and collective goals for the company and how they can contribute to the company achieving those goals.

Without an effective budget, people may not have a sense of what your company goals are – i.e. “do better than the year before.” Everyone will be pursuing their own ideas and working toward their own definition of what your company’s goals should be, with everyone pulling the company in ten different directions, you cannot possibly expect to meet your goals. A clear budget keeps everyone on the same page and moving in the same direction building momentum and continuing to meet expectations year after year.