Wed Jun 8, 2022 | Alan Lefkowitz | Financial Reporting
Budgeting and Forecasting: 6 Best Practices
Few things in the business world are as complex as planning and budgeting. It involves stakeholders, vendors, employees, technology, infrastructure, and many other aspects that can often cause immense stress. When considering the financial models of your business goals, you must rise to the challenge. Budgeting and forecasting lay the foundation for an organization’s fiscal health. Neglect them, and it will be a gloomy forecast indeed.
Here are Best Practices for Effective Budgeting and Forecasting
1 – Be Realistic
Planning is beneficial, but it’s not perfect. It’s essential to be realistic, especially when budgeting. It’s impossible to account for every risk and variable; however, the better you are at budgeting in your current reality, the better you can prepare for potential changes.
2 – Use Driver-Based Metrics
The best way to present and communicate data is in a way that’s easy to understand. Use metrics that can be broken down into a series of drivers that each affect the overall metric. By thoroughly understanding and monitoring these drivers, you can anticipate any changes and mitigate the risks.
3 – Always Have a Plan B
Risk mitigation should be part of every budget. You should always have a plan B, so your budget is protected in the event of a disaster. You’ll want to be proactive to better deal with the situation when it arises. Whether you have a backup vendor or are more conservative with your forecast, always have a plan B when planning a budget.
4 – Use a Reliable Accounting Structure
The best budget is the one that lives. You need to be able to use a system that will easily allow you to track and monitor your budget while also enabling you to get meaningful insights. It’s essential to have a reliable accounting system that makes it easy to review and compare historical data, so you can understand trends as they unfold.
5 – Review and Re-Visit Quarterly
Re-visiting your budget quarterly is essential, as it allows you to make adjustments as necessary. It’s also important to review the budget as your business and life change, as your financial business model will evolve. You’ll have the best chance of avoiding nasty surprises by keeping up with your budget.
6 – Document Your Budget and Forecasts
It’s essential to have a dependable system that will allow you to keep track of how your budget is performing. It’s also important to have your budget and forecast documented. Being able to review previous budgets allows for a valuable learning experience. You’ll be able to see if your plan B was effective and if any of your strategies need to be adjusted.
Final Thoughts on Budgeting and Forecasting
Budgeting and forecasting can be complex tasks with a lot to consider, yet the payoff is well worth it. Having a clear and realistic picture of your business’s health and your long-term financial targets will allow you to make sound investment decisions and prepare for any risks that may arise.
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