Business Budgeting and Forecasting

The Path to Success

What is a Budget?

A budget is essential for any business, to set out its future financial aims.  It can cover any period, but typically businesses prepare a detailed plan for at least the next 12 months.  This might be supplemented by a less detailed forecast for future periods.  As well as a profit and loss account, it is usual practice to prepare a fully integrated suite to include a balance sheet and cash flow forecast.

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Why Prepare a Budget?

A business budget has many different purposes. Its most common use is to review and benchmark actual results, which helps to spot areas of under- or over-performance.  These items can then be analysed to understand the causes.  Strengths can be exploited further and weaknesses addressed.  As an expression of future expectations, a budget will indicate intervals at which asset purchases, funding and/or additional staff will be required.  A budget will almost certainly be requested, alongside a formal business plan, in support of a funding application.

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Types of Budget

For a relatively small business, it may be sufficient to set a single budget at the start of each financial year.  However, more complex businesses may need to revisit their original plan throughout the financial period and prepare a re-forecast.  This may also be necessary if there have been any unforeseen events.

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Cash Flow Forecast

It is arguably more important to prepare cash flow forecasts on a regular basis, alongside the profit and loss account.  These are used to track expected movements in cash balances. Businesses do not normally fail because they do not make a profit, but because they run out of cash.  It is usual practice to have a detailed cash flow forecast, showing individual transactions, covering a relatively short future period, with less detailed information for later periods.  Whilst not essential, a balance sheet forecast will provide useful data as to how each component will change during the plan period, and can help track movements in working capital.

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How We Can Help

It can be difficult to know how to go about constructing a business budget and integrating the various constituent parts.  FD Business Solutions has considerable experience of preparing business budgets and cash flow forecasts, and can work with you to put a process in place.