Budgeting and forecasting

Effective management of your business finances is essential to your long-term success. The establishment of an appropriate budget and production of good financial forecasts can contribute to the financial health of your business.

What is a budget?
A budget is a detailed statement of expenditure and expected revenue. Your income includes income from sales, interest, accounts receivable and other income. Expenditures include costs such as payroll, inventory costs and insurance.

Budgets are often based on the fiscal year of an organization, then be distributed per month. In reviewing your budget regularly and adjusting as needed, you will have an accurate representation of your business finances.

Why a budget?
The establishment of an effective budget, you can:
• forecast revenues and expenses to come;
• determine an action plan to reduce costs;
• make sure to have enough money on hand to cover future expenses;
• establish a break-even;
• identify opportunities to improve your efficiency and productivity.
A well-organized budget must be based on figures and realistic assumptions. The formulation of sales forecast helps you prepare a detailed budget.

What is a prediction and why is it important?
The correct prediction of future sales is essential to create a strict budget. This is not an exact science but, based on your sales data and prior assumptions well documented, you can predict your future performance realistically.
To forecast, you might consider the following elements:
• your sales broken down by month earlier;
• new sales contracts and the contracts will not be renewed;
• changes in the size of your market or economic changes in general.

If you own a new business, you need to do a market study and analyze sales of similar businesses to yours in your area.
Forecasts can help you:
• make strategic decisions ( when launching a new product on the market);
• determine the time of year that suits you best for the holidays (you and your employees);
• calculate how far the boom must be profitable to your business survive an economic slump.

Funding is important for starting or growing a business. A strict budget indicates to investors and lenders that you have developed a clear strategy and a reasonable plan. In addition, realistic forecasts show that your business strategies are well documented, that you are aware of the pitfalls that can stand in your way and you know how to avoid them.

If you want your company to be successful, you must set a strict budget and make reliable predictions, otherwise you will have to work with someone with these skills.
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