It’s that time of year again, where we are wrapping up one fiscal year and ready to enter the next. As we were preparing to complete our 2017 budget we came across a few best practices from BMA Group that we thought were helpful.
While budgeting is one part of the equation, we thought we’d also share with you their insight into forecasting. Both are valuable tools when planning and evaluating the financial well-being of your company. Although they’re often used interchangeably, they complement rather than substitute each other. Here are great definitions:
Budgeting is the process of creating a plan or estimate of costs, revenues and resources during a prior year to manage financial conditions and goals of the coming year. It works as a financial guide or planner.
Forecasting compares the budget or plan to the current financial direction of the company to forecast whether the company will meet, exceed or fail to meet the expectations set by the budget. It attempts to predict future outcomes based on past events and management insight.
In other words, the budget sets your organization’s goals, while the forecast defines its expectations. Both tools are necessary to run a successful business.
So here are our favorite take-aways form BMA’s list of best practices:
1. STREAMLINE YOUR PROCESS WITH AUTOMATION
Whether you’re using spreadsheets or any QuickBooks, it’s worth your time to learn your system inside out—with all of its features. Small changes can make a big difference in usability, accuracy and speed.
2. BE REALISTIC
To be successful, budgets and forecasts need to reflect reality. Instead of being set in stone, budgets should be updated as frequently as needed to reflect economic, organizational and other outside variables. If your company is not meeting its budget and there’s no cash flow, then you can regroup and re-forecast to correct monetary issues, cut expenses, and grow the top line.
3. AVOID TOO MANY DETAILSMore details doesn’t mean more accurate. Too little or too much can hinder your budgeting and forecasting processes. Too much detail can cause an overload of information, slow down the process, and cause more technical errors, while a lack of detail while budgeting for large cost items or most volatile revenue components may lead to miscalculations and material errors. The best practice is to focus on detail where it matters and to plan in more detail for the short-term and less detail further out.
4. CONSIDER “WHAT IF” SCENARIOSA flexible budget that takes into account performance under alternative “what if” scenarios will serve your company better than one that ignores the future and invests too much time detailing the budget based on what happened in the past.
5. SHORTEN YOUR BUDGET CYCLEBudgeting typically uses up 10 to 15 percent of a company’s time. It takes five to eight months to complete the full cycle in large organizations. The length of time a budget should take varies by the size and complexity of a company. The general rule of thumb is that your budget should take no more than 30 days to prepare. Otherwise, it will be out of date and irrelevant to current conditions before it has even been released.
CHECK OUT ALL 12 BEST PRACTICES FROM BMA
As an integral part of our twice-annual trip to New York City for Couture Bridal Market we are always on the lookout for a...