Its mid-November already. Thanksgiving is next week, which means you should be well into next year planning.
If that's not a natural process for your business, there's no time like the end of year to get started. Facing a new year, it is particularly important to have a financial plan and know where your business is headed. Now's the time when your financial managers and team need to know their income goals, their service targets and how that translates to the bottom line.
BUDGET vs. forecast
A budget is a detailed projection of what a business thinks will happen for the next year. A forecast is an update to the budget, often at a higher level, that is usually done quarterly. I find the forecast vs actual to be more valuable than the budget vs actual. Why? Because the budget is done around Thanksgiving and doesn't change.
You can't predict the future, so don't spend a lot of time to get it just right. Just get your best estimate in place and recognize that its going to change.
The forecast is based on changes to the business in the prior quarter and more accurately projects what you think you should be doing. Its important to have that static budget, so you can see how to improve your budgeting for future years, but focus on the variance vs forecast to see how your business is really doing.
The biggest obstacle to budgeting is between the ears. Many never get a budget done because they try to get it perfect. Budgeting is predicting the future—which by definition means its going to be wrong. Don‘t spend a lot of time trying to make the perfect plan. Just get started and by next quarter you‘ll be a bit smarter. If you don‘t have a budget, now is the time. Create something so you are comparing actual results against plan. That‘s better than waiting until you have the time to get it just right. Just start now.
Cash flow Forecast
Unlike your budget and financial, which is an annual projection of revenue vs. expenditure, cash flow forecasts usually only project a few weeks ahead. One best practice is to develop a six-week cash flow forecast. You can download data from your organization’s QuickBooks directly into Excel to help you summarize your cash flow for the next month and a half.
A cash flow forecast, sometimes referred to as a cash flow projection, is usually a simple spreadsheet. But it’s not an ordinary spreadsheet: a cash flow forecast spreadsheet helps you predict your company's future cash flow position.
A cash flow forecast will help you understand whether or not your business has the capital it needs to expand. In addition, it will prepare you for future emergencies and unexpected expenses, help you anticipate periods when cash on hand will be tight, and make you feel confident in knowing your business will be able to tackle any fiscal challenges which lie in wait.
Maintaining an accurate cash flow forecast not only helps you stay in business, it will also help you make data driven decisions when managing your company's cash-on-hand -- ensuring you make the right choices regarding investment, debt payment, and business operations.
While most large corporations have a finance department dedicated to all things budgetary, for growing businesses the brunt of the budget and forecasting workload falls to business owners and management. This is the perfect time to remember why your business needs to budget and forecast – and how to get the most from yours.
So get ready to enjoy the Turkey, but spend some time over the long weekend working your best guess of what next year is going to look like so you have a baseline to compare actual results against.
If you or your employees find it difficult to develop a budget or properly forecast revenues and expenses, you may want to consider outsourcing. Thanks to cloud-based software and technology, small businesses and nonprofits can now obtain affordable bookkeeping, accounting and controller services from remote teams of accounting experts. Find out if you're a good fit for outsourcing...