A quick tip on budgets and forecasts
Author: Russell SmithJuly 26, 2012
A budget should be calculated annually. This is where you set aside time to plan and then set the benchmark for what you want to achieve in your business in the year – sales, costs, profit, cash – they should be looked at.
I once had someone challenge me at the validity of completing a budget. His issue was that you would never be able to predict it correctly. Well, yes – unless you had a crystal ball, you are never going to get it 100% accurate. But if you know the numbers in your business you should be able to have a good idea of what is achievable.
Let’s say that you are 3 months into your budget and things have not panned out as expected. Maybe, you’ve lost some customers, some team members, costs were higher than you thought. Or maybe, your business has performed much better than you imagined at the beginning.
Either way, the trick here is not to change your budget. The budget is a result of lots of hardwork (hopefully) and planning and should remain the same. If anything, at the end of the year you can see how good your budgeting skills actually were. So, don’t change your budget but you can write a forecast for the rest of the year.
This is where you are taking what you know – your actual results and then adding on the rest of the year. It is possible to do an actual + budget but sometimes if the budget is so far from reality it is better to completely do a new forecast.
The idea is that the budget doesn’t become so separate from your goals that it becomes unrealistic. A forecast can help with this to align you back to your business reality with also (hopefully) with some stretch – something to aim for.