Best Practices for Effective Budgeting and Forecasting
Few things in the business world are as complex as planning and budgeting. It involves stakeholders, vendors, employees, technology, infrastructure—as well as 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 incredibly useful, but it’s not perfect. It’s important 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 have the ability to be broken down into a series of drivers that each have an effect on 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, so you can better deal with the situation when it arises. Whether you have a backup vendor or you 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 important 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 important, 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 over time. By keeping up with your budget, you’ll have the best chance of avoiding nasty surprises.
6 – Document Your Budget and Forecasts
It’s important 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 difficult tasks with a lot to consider, yet the payoff is well worth it. Having a clear and realistic picture of the health of your business, along with your long-term financial targets, will allow you to make sound investment decisions and prepare for any risks that may arise.
If you are looking to get help with a CFO for small businesses, come to CFO Strategies. We offer CFO and Financial Controller services on a part-time basis, onsite or virtual, to help you understand the financial health of your company and to help you make better informed business decisions.