The very words budgeting and forecasting can make the eyes glaze over and many CEOs are swamped with too much work to invest time where it’s most needed: keeping the business on track with the long-term vision.
Two vitally important areas of focus should be budgeting and forecasting; both factors that need to be monitored and accurately analysed. Having a handle on the numbers means you’re always ahead of the game.
The terms budgeting and forecasting relate closely although have quite different meanings. Each should be clearly understood.
Basically, they form two ends of an annual financial cycle. Both budgeting and forecasting rely on data gathered throughout the financial year. Then, they attempt to predict future conditions upon which the business can build an action plan. Budgeting requires an understanding of historical data as well as the goals of the company and future variables. These may include technological innovations and upcoming market or legislative changes. Forecasting is more dynamic and takes all data and variables into consideration to generate future predictions.
6 tips for budgeting & forecasting
1. Start with the end in mind
You can’t have a plan without an end goal. Without a goal, there is no direction. It is crucial that a CEO’s time is spent reflecting on and clearly defining long- and short-term objectives for the company.
When solid goals are in place, the planning process is easier, and can help unite the entire team. Everyone then gets to share in the feeling of accomplishment when goals are met.
2.Teamwork is essential
Making budgeting and forecasting a team effort carries advantages for the CEO and the company. It often maintains a feeling of workplace community and synergy. A CEO can’t be an expert at everything and being able to delegate to those who can get the job done is vital.
Teamwork is especially important when forecasting. The team can provide feedback so you can have continual inflow of new information from each department. Involving the team provides new perspectives so you can get a well-rounded picture of where your company is currently and where it’s headed.
3. Everything must be accounted for
When budgeting and forecasting, it is common to miss small details, especially when pushed for time. Every expense, variable, and goal needs to be accounted for. As CEO, keep records of every component of company expenditure from marketing to stationery, or have a great bookkeeper or CFO who can do this on your behalf. It can be surprising how the little things add up.
Once your budget is finalised, it’s time to forecast. Take into account each potential outcome for the new year. Pay attention to market changes and don’t rely purely on historical data.
Trend watching is important, as is listening to feedback from clients and customers, and keeping an eye on competition. The minute details matter when forecasting.
4. Plan for various scenarios
Predicting the future and retaining the ability to adapt is all part of leading a company.
Because of the often-unpredictable nature of markets, changing technology, and new competition, it is critical to forecast strategically and roll with any unexpected punches the industry may dish out.
5. Maintain an objective strategy
Try to keep an objective strategy. Short-term plans will change due to varying demands, shortages, or unforeseen factors, but you will make the most out of forecasting if you maintain a completely separate and objective strategy despite all possible variables.
The strategy should have less to do with potential scenarios and more to do with the company’s overall goals. Think of different options that could happen to throw your plans off course. When the time comes to take action, it is essential to have fool-proofed the real plan.
In summary: set goals, involve your team in the process, develop flexible plans, and budgeting and forecasting should be seamless. We all know that life throws us curveballs, but following these five tips can ensure that you and your company are prepared to tackle anything and emerge winners.