Budgeting and forecasting is the practice of managing finances and setting projections for future financial necessities. This is often practiced by managers and executives who are responsible for the financial planning of their organizations. Managers normally make these decisions with the help of statements and charts provided by managerial accountants or financial analysts who specialize in compiling data so that managers can gain insight into the cost of operations and patterns of growth and loss. Some of the best tips for budgeting and forecasting are to use financial history as a guide for what to expect, communicate closely with heads of departments, and make sure that budgets match with revenues.
Most financial experts believe that an organization's budget often is consistent from year to year. In other words, it is uncommon for a business's needs to suddenly change from one year to the next. With this in mind, a manager who is performing budgeting and forecasting can analyze carefully the budgetary needs from past years. Changes in budgets generally are slow to increase or decrease. A realistic budget is usually close to budgets from past years.
In most cases, different departments have their own budgetary needs. Before a manager or executive can create a master budget for a whole organization, he or she should communicate with department heads about what expenses they can expect. Managers should set budget deadlines for each department. A good idea can be to meet individually with each department head to discuss changes from last year and brainstorm for ways to cut cost.
Specialists often urge managers to be realistic about their budgets. This means that managers should be sure that their budgets meet their revenues. When their budgets exceed what is realistic, it is often because of inefficient business plans. In other cases, managers might base budgets on overproduction or overstock that far exceeds demand.
As a manager revises a budget, he or she may find that business strategies change as well. As a matter of fact, it is quite common for a manager to revise business plans throughout budgeting and forecasting processes. It is generally most beneficial, however, to have a business plan in place prior to the start of a new fiscal year, as this helps to ensure that a clear blueprint for spending and growth is in place.
Another good tip for budgeting and forecasting is to make sure that a master budget feels right. Many experts believe that managers should compose summaries that explain budgetary needs and provide transparency of business plans. When a manager feels that there is something wrong with a summary or plan, he or she should pay closer attention to details. A manager who is familiar with operations of his or her organization often can sense when a component does not make sense.
