Budgeting and forecasting are sometimes used interchangeably, yet they’re actually very different practices that affect your business in unique ways.
Whether you’re a sole trader, company director or another type of entrepreneur, integrating budgeting and forecasting into your business strategy is crucial.
What is financial budgeting?
As a business owner, you’ll have two sets of goals and ambitions. The first set is linked to your business, such as increasing your sales, achieving greater profitability and developing opportunities for staff to get involved in charitable activities. The second set is all about you as an individual, with popular objectives being financial stability, a stronger reputation amongst your peers, and more spare time to spend with family and loved ones.
No matter how grand or specific your goals are, they play the incredibly important role of keeping you dedicated to your business. However, as lovely as it is to have dreams, they rarely come true without strategic planning, consistent delivery and plenty of elbow grease.
By working with TreyBridge Accountants, you gain access to premium business advisory services at an affordable price. Our own goal is to help you identify areas of your strategy that can be redesigned, as well as add new processes and remove superfluous ones where applicable. This enables your business to run at optimum efficiency and head directly toward your core objectives.
A wider example is budgeting for the full financial year. You’ve gone through your books with your accountant and identified £5,000 that can be comfortably invested in growing your business through a variety of methods, such as staff training, advertising, new technology and industry subscriptions. The budget for this will be similar to the one above, except that each area of activity is analysed individually and in relation to the whole. This gives you the opportunity to tweak each estimate according to the overall budget, leading to a strong financial strategy.
When you follow a defined budget, you always know where your money is going and what it should bring in as a result, as well as the positive and/or negative impact it will have on cash flow. By incorporating some flexibility, you can then gauge the incremental results on a regular basis and amend certain areas where suitable.
What is financial forecasting?
When it comes to forecasting, you’re using a wide range of data, knowledge and insight in order to estimate the future financial outcomes of your business. This will almost certainly begin with studying all fixed and variable costs, as these are areas that often present opportunity for improvement.
For example, if your commercial rent has gone up, it could be worth relocating to more affordable premises; meanwhile, if you’re spending a lot on printing and postage, you can look into becoming a paperless office and focusing on digital correspondence.
Next up, you create estimates of what your revenue will be. In fact, you create two of them – one conservative, one aggressive. In other words, a worst-case scenario and a best-case scenario. This in itself involves numerous factors, such as low vs premium price points, existing workforce vs additional staff, minimal marketing vs an advertising push, and even a national/global economic slump vs widespread growth. Chances are that the actual situation will end up being somewhere in between, but by planning for extreme cases at both ends of the scale, you can create a final financial forecast that’s ready for anything.
This process will also allow you to gather precise data on key ratios, such as your gross margin, operating profit margin, and total headcount per client (it could be that you need more or fewer staff in the near future in order to achieve your goals).
To put it another way
Budgeting is planning where you want your company to go by allocating the right amount of money to particular activity and specific time periods. Forecasting is an in-depth report that uses data to identify whether the business is where it should be and moving in the right direction to achieve its future goals.
Both budgeting and forecasting are powerful systems that enable businesses to not only survive but also thrive. Our specialists are ready to analyse your circumstances and help you to budget and forecast effectively, guaranteeing greater control over your daily operations, monthly cash flow and long-term business growth.
Get in touch
To find out more about financial budgeting and forecasting, call our Northern office on 01482 235575 or our London office on 0207 885 0605. Alternatively, you can fill in our contact form and one of our specialists will get back to you right away.