Budgeting & Forecasting


How to Improve Budgeting & Forecasting Abilities with the Right Tools

Budgeting and forecasting are essential activities for any sized business, but not surprisingly, many small and medium sized businesses still rely on outdated tools to budget and forecast. Spreadsheets were never meant to be used for complex business analytics. Indeed, the vast majority of spreadsheets and even spreadsheet models contain errors.

We can look at it this way – a golfer checks where the ball must go. He assesses the wind strength, direction of the wind, the distance to the hole and obstacles in the way. Based on the information collected, he chooses his iron and makes a final visualisation of how the ball will move. He then hits the ball and checks where it goes. If he forecasted correctly based upon the available information and usage of his resources, and the execution was good, then the ball will land pretty close or even in the hole. But, one degree off in calculation will mean that at a distance of 200 metres, the ball will land far from the hole. Just one degree off means missing the target.

Using a spreadsheet model and making just one important mistake, which could be a calculation error, input error leading to a calculation error, or even worse, a formula error where the wrong cells are calculated, can have disastrous effects. The entire budget would be compromised and with such, also the forecasting ability.

Besides, the process is tedious and riddled with mistakes, and employees often don’t put much effort in their budgets, simply because they don’t experience the benefits of accurate budgeting and forecasting.

The Importance of Budgeting

The estimation of revenue (forecasting) and matching of the costs with the real or the estimated revenue is essential to help the small to medium sized organisation to assess whether there are enough funds available for particular projects or processes. This enables them to prioritise resources, in order to reach the company goals. Without a budget and forecast plan in action, overspending follows. Cash flow problems become a reality and all too often, business growth comes to a grinding halt.

Budgeting with Purpose

Every organisation, whether big or small, has expenses. Not all the expenses are set in stone. The rent amount for the office space, for instance, is known and doesn’t change. It is an expense that will be there every month with about 15 per cent of an escalation in the next year.

The company’s labour expenses must also be set, although a company with sales personnel must make provisions for travel costs, sales commissions and the likes. The fixed expenses should be listed and then the changing expenses, which can be estimated or predicted. Then there are those expenses which are difficult to predict, as well as unknown expenses. The person budgeting must always consider which expenses can be controlled and which ones are fixed. The controllable expenses must be reduced where possible.

Add to the above the importance of being able to forecast revenue. There must be an estimation of revenue in order to budget for expenses along the way. It can become a complicated process for which the spreadsheet model is simply not well suited. Recent trends in the business’ income can be used as a basis for forecasting.

A start-up business will use the information about operating hours, revenue of similar types and sizes of businesses, the geographical area, etc. to make the estimates. An existing business has historical and current data to work with. But the problem comes in with analysing the data. What if scenarios must be created because the future is never a given, and we can only make informed and educated guesses or estimates.

That being said, having a software solution that is tied to KPIs and business performance management can help the small and medium sized organisations to get more accurate estimates, set goals to be attained, measure outcomes and track progress towards the set goals. This makes it possible to keep the organisation on track for reaching its goals. It goes through all the way to the various departments and the individual employees in those departments.

How We Can Help

We have the expertise, solutions and tools to help improve your budgeting and forecasting accuracy, reduce the time it takes to budget and forecast, improve business performance management and drive your business’ profitability. You don’t have to play the guessing game. With the advanced tools available from us and our expertise in using such, we give you immense analytical power to improve your business performance.

You get a self-service data analytics solution that makes your analyses easier. The solution is available wherever you have internet connectivity, whether from a mobile device or from your desktop. You also get automated month-end reconciliations and ongoing error checking.

Keep on track and maximise the benefits of accurate and streamlined budgeting and forecasting. Call us for more information on our solution to help you improve your business’ profitability.