Budgeting and forecasting as tool to predict business

Why budgeting is important for business?

Financial management and understanding it are an essential part of running a business. The budget serves as a tool that creates a path towards the company’s goals and helps the company’s management to plan its operations. Budgeting allows a company to forecast the future and thus also react to possible future changes. The importance of budgeting and forecasting is emphasized in this current state, where the income stream of many companies has changed radically from the time before coronavirus.

Budget gives a clearer view to the future

I have daily discussions with business decision-makers and currently the discussions are held as Microsoft Teams meeting or by phone. I am especially interested to hear how the company decision-makers and their companies are doing in the middle of a crisis. Some companies are doing quite well considering the situation, others have been able to take advantage of the situation and as a result, business is doing well. However, unfortunately there are also companies that are doing poorly, and the crisis has forced companies to live in great uncertainty. We cannot influence the ruling circumstances, but with budgeting we can get a better view of the future and leave as few things as possible to chance.

High-quality budget adjusts to the changes in the company

It has been surprising to notice in discussions that budgeting and forecasting are done rather poorly even in large companies. Unfortunately, budgeting is often not done at all. Companies with a turnover of tens of millions and even hundreds of employees operate without high-quality budgets or forecasts. Budgets created in companies are often so-called top-level budgets where sales are not broken down into different business areas, nor to cost centers between different offices or projects. Sometimes expenses are put into administrative costs because breaking them down would be too much work.  In many cases, budgets are also not updated because of the mindset that when the budget has been made once it does not need to be changed. However, the budget should be regularly monitored and developed, and forecasts updated, especially when the situation faces significant changes.

Budgeting and forecasting support company’s decision making

Many companies are currently having to make decisions about cutting costs, reorganizing operations, possible layoffs, and other measures to ensure business continuity. Can such important decisions be made without reliable real-time data? In many companies, decisions right now must be made with poorly made figures and forecasts, or even without any information on which to base these decisions. As the crisis continues, more and more companies are in danger of experiencing financial difficulties. As a result, companies go into crisis or in the worst-case scenario, even go bankrupt. The situation could have been avoided or at least companies could have been better prepared if reliable data had been available.

Electronic financial management makes budgeting more efficient and makes it easier to monitor company’s finances so that reaction-time to changes decrease. Dare to demand high-quality budgets and forecasts to support your management work.

Johan Simell | Sales Manager

Truly on the same side with clients to find the most suitable solutions for managing the company’s finances.