The Benefits of Planning, Budgeting and Forecasting

Published - May 06, 2022

On the surface, planning, budgeting and forecasting may sound like three different ways of saying the same thing. But these are three different (though connected) critical business tasks. Failure to do any of the three can result in your business running out of cash.

What Does Planning, Budgeting, and Forecasting Mean?

All three of these business tasks are vital to creating a roadmap for business objectives and ensuring there is enough cash to carry it out. Each of these tasks plays a different role:

1. • Planning – Planning is creating a list of business objectives for the period in question (usually 1/3/5 years). The planning process should dig into how the business will achieve these objectives in order to make the budgeting process easier.
2. • Budgeting – Budgeting is the process of working out how much it will cost to achieve those objectives alongside the costs of keeping the business running. It allows a business to allocate its resources effectively in order to maximise ROI and keep the business open.
3. • Forecasting – Forecasting involves examining data in order to predict the revenue and profit of the business. This data may come from internal sources (previous financial and sales records) or external sources (market trends, economic data, etc.). Forecasting is an ongoing process as predictions may change as more data becomes available. As forecasts are updated, plans and budgets may need to be tweaked.

Why Planning, Budgeting, and Forecasting Is Important

These business processes are important because they allow you to:

1. • Manage and allocate your business resources
2. • Identify the ROI of your business strategies
3. • Predict cash flow
4. • Spot market trends as they happen
5. • Create an action plan to achieve your business goals
6. • Track the impact of each strategy
7. • Identify areas for improvement
8. • Generate data that can be used for future forecasting or as proof of concept for lenders and investors

   Without planning, budgeting, and forecasting, you have to base your business strategies on hope and gut instinct alone. You risk overextending yourself in a certain aspect of your business, meaning you miss out on future opportunities.

   How Planning, Budgeting, and Forecasting Work

   Each of these three business processes informs each other. You start by creating a plan to map out all of the things you want to achieve during the period in question. A budget and forecast allow you to prioritise each strategy based on cost and predicted results. Once you have the data, you can tweak the plan and then implement it.

   Once the plan is in motion, you should review the budget and forecast on a regular basis. Doing so will allow you to identify any issues before they become a serious problem. For example, something may end up costing more than expected, or analytics may show that your campaign wasn’t as successful as forecasted. As you collect new data, you can tweak the plan to increase the effectiveness and bring your budget back under control.

   Planning, budgeting, and forecasting can be done by your finance department and management team. With the right tools, your finance department can provide your management team with the data they require to plan and implement your business strategies. If you are a growing business and don’t have the budget to invest in planning, budgeting, and forecasting expertise or technology, then consider outsourcing these processes.

   You can outsource your planning, budgeting, and financing to corporate finance experts in order to access leading data and insights to help your business thrive. Pick a package that meets the need of your company, from basic data collection and forecasting to financial analysis that delivers easy to grasp insights to assist you and your management team. We have a range of packages and services to choose from.

Posted in Finance on May 06, 2022