Budgeting is the process of creating a plan in order to allow you to determine in advance whether you will be able to afford to do the things you desire to. It is simply balancing your expenses with your income. If these don’t balance, it is likely that a financial problem will arise in the future.

As the process allows you to create a plan for your money, it ensures that you will not be left without money for the assets you need to purchase. Budgeting is a key way to stay out of or help work your way out of debt.

5 Things to Ensure Successful Budgeting

The following advice will help ensure your budgeting is successful:

• Allow a sufficient amount of time to complete your budget setting process.
• Ensure everyone who is involved understands what is happening at every stage.
• Review the actual performance of the process regularly.
• Look ahead whilst you are budgeting – don’t just base the process on the last 12 months.
• If mistakes are made, don’t get distracted by them.

Forecasting – Why Is It So Important?

Forecasting is the process of predicting the future based on present and past data. It provides information about the potential future and its benefits or consequences for an organisation. It is not guaranteed to reduce the complications of the future. Although, it increases the confidence of the management to make important decisions.

Forecasting ensures the following:

• It demonstrates the financial viability of a new business. Allowing you to gain an idea of how your business might perform financially if certain events, strategies and plans are carried out.
• Allows you to measure the financial operation of the company against the forecast financial plan and make adjustments.
• Allows you to take control of your cash flow and guide your business in the right direction.
• Identifies cash shortfalls and potential risks to keep the business out of financial trouble.
• Provides an estimate of future cash needs.

5 Things to Remember When Forecasting

The following five points will ensure you are forecasting correctly:

• Ensure you are making an honest assessment of how your business did with last year’s budget
• Always forecast from the bottom up.
• Keep an eye on your businesses historical performance over a period of time.
• Do some research – look at other companies’ norms and standards and compare them to how your company is performing.
• Ensure you document your assumptions on your forecast.