Budgeting and forecasting the estimated financial performance of your company not only gives you a crystal clear direction in which to evaluate your performance, but it also lets you set goals you may want to meet within a certain timeframe.
When you’ve just started a business, budgeting is one of the most important tools at your disposal – especially if your cash flow seems to be fluctuating a lot throughout the year. Being able to forecast your expenditures and budget accordingly will ensure that you don’t lose precious business due to not having product.
How Does it Work?
You need to sit down with your accounting team, figure out a long-term (annual or 5-year) goal, and then determine what steps need to be taken to reach those goals. The process of budgeting and forecasting will help you discover what financial decisions you need to make on a weekly, monthly, and annual basis to reach all your business objectives.
We recommend asking these questions to get started:
· What is the capacity for sales in a specific time span, and what expenditures will be incurred during that period?
· How much cash flow will your business have before and after the expenses?
· Do you have the “right people” leading the department teams?
· Are your financial projections accurate and realistic?
The Importance of Budgeting And Forecasting For New Enterprises
As a new business, budgeting and forecasting is critical to your business success because it allows you to set targets for income as well as expenses. Here are a few other reasons why budgeting and forecasting are vital for your budding business:
It Helps Identify Risk Areas Early on
With a financial forecast, you can see the profit and loss statement, which is essential to your business assessment. If you can’t show that you will be profitable in the future, it will be nearly impossible to gain any significant investment or capital funding.
It Helps You Take Control of Cash Inflow And Outflow
If you are not in control of what’s coming in and due to go out of your company, you could run out of cash to be owed money from customers, pay the bills and salaries, and fail to get new funding.
It Helps Predict Cash Flows
There are several reasons why forecasting your cash flow is necessary but the most important one is that it ensures you will always have sufficient cash to run your business. For example, you may end up with a large tax bill during the year. If you haven’t planned for it, you may not be able to pay the IRS which could result in massive penalties and fines.
It Helps You Track Your Business Performance
By budgeting and forecasting, you can manage your sales pipeline and track your performance against the targets you set. Remember, you must have complete transparency on how well the sales are going.
Which product/service/team member is performing best and why? Is the conversion rate high? When you know what areas to improve, you can create a solid action strategy.
Talk To a Budgeting & Forecasting Expert Today
Many new business owners struggle to create no-nonsense and easy to maintain templates for budgeting and forecasting. To make sure your new venture gets the most out of the budgeting and forecasting process, consider outsourcing it to a professional accountant at Remote Accounting Online.
To schedule a free strategy session for better financial clarity, call us at 541-772-5555 or reach us online.