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Budgeting





What Is The Difference Between Budgeting and Forecasting?

Budgeting is the financial representation of a planning process, usually annual as in the University. It is finalised before the beginning of a financial year and actual income and expenditure are measured against it as a means of reviewing performance and controlling expenditure.

 Forecasting is a shorter-term activity, usually performed at regular intervals e.g. quarterly and limited to updating our view of the current year. It takes into account actual income or levels of expenditure and projects these forward to the end of the financial year.

 For enterprises in today’s fast-paced, competitive and ever-changing business environment, dependable business forecasting is essential to future success. As such, CFOs are relentlessly striving to gain insight into corporate data to make informed, real-time decisions and forecast their financial standing.
Part of that process is the annual budget, which remains central to any organisation’s business planning. In our view, the major challenge with traditional budgeting is the time and resources required to run the process. For some companies it takes so long, that by the time the process is completed, the budget is already out-dated. The issue is further compounded if companies are running Excel-based budgeting systems, which are slow, restrictive and error prone.

 Why Do Organizations Prepare Budgets.

So, why prepare a budget? By creating a budget, you’ll be able to hold he company accountable for its expenditures, reduce costs, and prepare for a worst case scenario. It serves as a measurement tool that can visually illustrate if you have enough cash to operate or to grow.
The steps in the budgeting process are:
  • Prepare the budget
  • Negotiate and agree on the budget
  • Monitor the budget
Prepare a Budget.

Typically, prepare the annual budgets before the fiscal year begins. This window of preparation helps facilitate execution.  Early decision-making will provide boundaries within which the company must abide. Oftentimes, if you don’t prepare budget ahead of time and create it on the spot, then arguments and internal issues begin to arise. You can avoid disputes when executing a budget by preparing early.
During preparation, it’s important to focus on fiscal targets. Fiscal targets are are goals for specific financial categories. These could include profit, debt payback schedule, operating expenses, projected borrowing requirements, etc. By laying out these goals, you’ll be better equipped to prepare a budget that will allow negotiating and finalizing of the budget to go smoothly.
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