Budgeting and Forecasting can prepare business owners by identifying impending financial difficulties and planning for capital needs. A forecast is a necessary part of any business plan and will be required when an owner is raising capital or applying for a loan.
The Strategic Planning is used to plan the longer term needs of the business and to improve strategic decisions. Spanning a three to five year time period this forecast communicates the forward looking health of the company.
The Operational Budget is used to improve day to day tactical decisions. Spanning a twelve to twenty four month time period this budget will aid in communicating the short term goals of the organization.
Working together the Strategic Planning and Operational Budget provide a road map for business owners to plan for the future needs of the organization and measure performance.
Strategic Planning applies forward thinking principals
- Providing a framework for What-if analysis.
- Identifying long-term risks and opportunities.
- Estimating the impact of these risks and opportunities using sensitivity analysis, scenario analysis and ratio analysis.
- Planning for future cash flow requirements.
Operating Budgets serve as a framework for productive discussions
- Helping managers understand the business drivers.
- Improving operating margins
- Evaluating performance of products and staff
- Communicating company-wide goals, changes and initiatives
External Estimates serve as a communication tool
- Forecasting the expected future financial health of the business to lenders.
- Reporting information required to maintain compliance with covenants.
- Preparing board members for a supervisory review.