Budget Forecasting

Not able to finalize your budget to manage your expenses?

NRV & Co. can help you in analyzing your cash flow, expenses and prepare a budget which will help you keep your business in check.

Budget Forecasting

Introduction

A business without sufficient money is like a human body without blood. A budget is a roadmap that helps you manage your money. It guides your expenditures to help you reach your financial goals. Budgeting is done in order to keep track of the expenditures and income.

Budgeting is an important component of financial planning for the decision-making process and any business success. While budgeting your plan of all your expenses allows you to understand whether you will have enough finance to continue with your operations smoothly for a particular period.

A budget helps in preparing a business’s financial plan to better manage monthly, quarterly and annual cash inflows and outflows. A budget which has been prepared with due care and accurate estimations serves as a monitoring and controlling tool in order to manage the finances of a business.

Meaning

Creating a budgeting process is the most effective way to keep your business - and its finances - on track. Budget is a projected statement of revenues, expenses, cash inflows, cash outflows over a period of time. Budget can be short term i.e., a week, a month or a quarter or long term i.e., half year, annual or five years.

Process involved

1. Make time for budgeting and involve right people

2. Collect last year figures and other relevant data

3. Assess financial resources

4. Take realistic assumptions

5. Decide on capacity level, expense level, fixed and variable costs

6. Keep cushion for emergency

7. Prepare Budget

8. Track actual performance and compare with budgeted

9. Make changes in budget, wherever required

Need of budget forecasting

Budgeting helps business in several ways. Below are good reasons why every business should create and stick to a budget.

1. Set Spending Limit: Budget gives a projection of future estimated cash inflows and outflows which sets spending limit for business.\

2. Reduce stress: Since company has plan for its expense, revenue, and cash flows, so there is no shortage of funds which reduces the stress of businessman since everything has already been forecasted.

3. Monitor Performance: Budgeting helps business to compare actual performance with the projected performance so that deviation can be found out. It serves as a tool to monitor and control the variances.

4. Improve decision making: Budget helps in informed and proper decision making since all information is handy with management.

5. Profitability analysis: A properly structured budget points out what aspects of the business produce money and which ones use it, which forces management to consider whether it should drop some parts of the business or expand in others.

6. Funding planning: Budgeting helps management in deciding the sources of funds like equity shares, preference shares, debentures, bonds, loan, reinvestment of profit etc. A proper capital structure i.e., mix of equity and debt helps the organisation to achieve its desired goals.