Professional Documents
Culture Documents
Planning is the process by which a company sets out its overall goals and the specific
strategies it will implement to meet them, in both the short and long term. It may
include the budget, as well as other qualitative and quantitative methods. If the goal is
to increase revenue 10 percent, planning will estimate the target and suggest methods,
such as obtaining new clients or increasing client billings. Planning may encompass
personnel requirements, plant and capital investment and whether to fund growth by
issuing equity or debt.
Budgeting
This is an annual process which generally starts with the previous year's actual
revenue and expenses and builds a new budget. It is the number-crunching piece of
the puzzle, and turns estimates of increases or decreases in specific areas based on
economic, demographic and other trends, plus the goals handed down during planning
into specific revenue and spending accounts. For example, if revenue was $100
million last year, and you want a 10 percent increase and expect an 8 percent increase
in costs, a detailed financial budget process allocates these increases and decreases,
often to the month, week or day, particularly for retail businesses.
Forecasting
This is a process of fine-tuning or even adjusting future budgets based on ongoing
performance. If early goals slip, it will affect the chance of achieving later goals.
Through forecasting, a revised budget can be implemented during the fiscal year, and
allow necessary adjustments in expenditures and strategies as necessary. It's key for
business to be constantly monitoring goals to make necessary changes as quickly as
possible when there are shortfalls in production, revenue or any benchmark activity.
A Powerful Combination
Many small business owners simply want to do the day-to-day work that they enjoy,
the core of the business, whether it is landscaping, repairing computers or
manufacturing a product. It takes another level of analysis, or financial management,
to go beyond the business of the business and be successful enough to grow. By
taking charge of how you run the business, budgeting and forecasting key financial
data, you have both the data and the knowledge to improve and expand. If you intend
to borrow money or attract investors, these processes are likely to be a requirement.
Planning - outlines the company's financial direction and expectations for the next three to
five years.
Budgeting - documents how the overall plan will be executed month to month, specifying
expenditures.
Forecasting - uses accumulated historical data to predict financial outcomes for future
months or years.
BP&F software consolidates and centralizes financial information, which can make it
easier for finance managers to produce more accurate budgets and perform what-if
scenario analysis. Budgeting, planning and forecasting software can be purchased on
its own or as part of an integrated corporate performance management (CPM)
system.