During discussion with our clients, we find many organisations don’t spend quality time for creating budgets. In this blog, we would like to explain how critical the budget is; how it can transform the way organisations can be managed.
Budgeting, Planning and Forecasting (BP&F) is a three-step strategic planning process for determining and detailing an organization's long- and short-term financial goals. The process is usually managed by an organization's finance department under the chief financial officer's (CFO) guidance.
The three steps involved in BP&F include:
Planning outlines the company's financial direction and creates a model of expectations for the next three to five years. Planning is often the first step in setting up a company.
Budgeting documents how the overall plan will be executed month to month and typically includes estimates of revenue and expenses and expected cash flow and debt reduction. Companies often set up their budgets at the beginning of a calendar or fiscal year and leave room for adjustment as revenues grow or decline. Budgets are compared with actual financial statements to calculate the variances or errors between the two.
Forecasting uses accumulated historical data and market conditions to predict financial outcomes for future months or years. Aimed at helping management teams anticipate results based on past information, forecasts can be adjusted as new information is available. In contrast to budgeting, financial forecasting does not analyze the variance between forecasts and actual performance.
Proper BP&F strategy is beneficial to organizations by producing competitive advantages such as more accurate financial reporting and analytics, higher overall revenue growth and increased predictive value.
We will explain each of these in detail with our future blog section. Stay tuned!