Slippin’ into the future. People of all ages are making life changes this month and looking towards new schools, new jobs, and new adventures in the future. As I get older the future seems to arrive faster and faster and before I know it…it’s here! Thinking of how you want your future (and inevitably) your today, to look is the only way to get there.
In business, we use budgets and forecasts to help guide us. They are often lumped together but are quite different.
Budgeting is the process outlining what the business will think will happen over a year. It uses information about the companies revenues, expenses and cash flow. After the time period is up, actual financial results are compared to the budgeted amount. Any variances are analyzed and determined if they helped or hurt the overall business.
Forecasting is a projection of what you think will happen at a higher level by examining historical data. Usually key revenue items and expenses are reviewed and be short-term and long-term. A revenue forecast will drive adjustments to things like employee numbers and inventory levels. Using more than one forecast can be helpful: an optimistic one, a most likely one, and a pessimistic one.
These two tools should be used together. Forecasting can help with creating and updating a budget.
Most accounting software is able to generate these types of reports. You can also do it using excel spreadsheets. Be sure to use knowledge from your key employees to help create them and update them with any changes as time goes on.
Don’t let time slip into the future without planning for it!
Jordan Ilderton, CPA