Services
Budgeting and forecasting
Your Roadmap to Confident Financial Decisions.
INTRO
How to prepare a budget or forecast
Preparing a budget or forecast for a business is like planning your personal finances – it helps a business predict how much money will come in and go out so you can make informed decisions.
The structured methodology
Drafting forecasts and budgets for a business involves a structured methodology to predict future financial performance and allocate resources effectively. We facilitate this process and provide a general outline of the methodology we adopt in calculating forecasts and budgets for businesses in distress.
1. Define the Objectives of Forecasting or Budgeting
The primary goal is to predict future financial conditions and performance based on historical data and market trends. The goal is to allocate resources to achieve specific business goals for a defined period.
2. Gather Historical Data
Review past financial statements (income statements, balance sheets and cash flow statements). Analyse past performance to identify trends, patterns and variances. Collect industry-specific data and market intelligence to inform assumptions.
3. Market and Economic Analysis
Research external factors that could affect the business, such as changes in economic conditions, competitors, regulatory changes and market trends.
4. Identify Key Assumptions
Forecasts are often built on assumptions such as revenue growth rates, cost increases, market conditions and inflation rates. These assumptions should be realistic and based on solid data, including expert opinions and industry benchmarks.
5. Develop Forecasts
- Project future sales based on historical data, market analysis, and business goals. Predict costs (fixed and variable), including labor, raw materials, overhead, marketing and capital expenses. Forecast cash inflows and outflows to ensure the business maintains sufficient liquidity. Use various forecasting methods including rend Analysis, Regression Analysis & Scenario Planning Analysis.
- Plan for large capital expenditures, such as machinery, equipment, or new technology.
6. Regular review of forecast or Budgets
- Review the forecasts and budgets to ensure they align with actual performance by using variance analysis.
- Revise assumptions, forecasts, and budgets as necessary based on updated information.
- Budget and forecast models filter into the cash flow forecasting tool to ensure alignment of planning.