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What Are the Best Tips for Budgeting and Forecasting?

D. Nelson
D. Nelson

Budgeting and forecasting is the practice of managing finances and setting projections for future financial necessities. This is often practiced by managers and executives who are responsible for the financial planning of their organizations. Managers normally make these decisions with the help of statements and charts provided by managerial accountants or financial analysts who specialize in compiling data so that managers can gain insight into the cost of operations and patterns of growth and loss. Some of the best tips for budgeting and forecasting are to use financial history as a guide for what to expect, communicate closely with heads of departments, and make sure that budgets match with revenues.

Most financial experts believe that an organization's budget often is consistent from year to year. In other words, it is uncommon for a business's needs to suddenly change from one year to the next. With this in mind, a manager who is performing budgeting and forecasting can analyze carefully the budgetary needs from past years. Changes in budgets generally are slow to increase or decrease. A realistic budget is usually close to budgets from past years.

Realistic budgets are usually similar to those of previous years.
Realistic budgets are usually similar to those of previous years.

In most cases, different departments have their own budgetary needs. Before a manager or executive can create a master budget for a whole organization, he or she should communicate with department heads about what expenses they can expect. Managers should set budget deadlines for each department. A good idea can be to meet individually with each department head to discuss changes from last year and brainstorm for ways to cut cost.

Specialists often urge managers to be realistic about their budgets. This means that managers should be sure that their budgets meet their revenues. When their budgets exceed what is realistic, it is often because of inefficient business plans. In other cases, managers might base budgets on overproduction or overstock that far exceeds demand.

As a manager revises a budget, he or she may find that business strategies change as well. As a matter of fact, it is quite common for a manager to revise business plans throughout budgeting and forecasting processes. It is generally most beneficial, however, to have a business plan in place prior to the start of a new fiscal year, as this helps to ensure that a clear blueprint for spending and growth is in place.

Another good tip for budgeting and forecasting is to make sure that a master budget feels right. Many experts believe that managers should compose summaries that explain budgetary needs and provide transparency of business plans. When a manager feels that there is something wrong with a summary or plan, he or she should pay closer attention to details. A manager who is familiar with operations of his or her organization often can sense when a component does not make sense.

Discussion Comments

ysmina

I think that budgeting and forecasting is necessary at a household level as well. I like to put together a family budget every month and sometimes for the whole year. It's a good way to figure out how much we can save after all of our expenses. I think that a family budget also keep us on track and we're less likely to splurge on sudden purchases. We realize that we would fall back with our financial goals if we do. So it works out very nicely. I recommend it.

literally45

At my business, we prepare annual and quarterly budget plans. The thing is that we almost always change them as we go along because we have new expenses or profits to account for that are not in the budget. Sometimes I wonder why we do the annual budgets in the first place but I guess it's still a good idea to get it all down on paper. Plus, at the end of the year, we can compare our initial budget forecast with the actual budget and figure out why we had extra costs come up, etc. It's a good way to spot issues so that we can deal with them before the next annual budget.

ddljohn

Budgeting and forecasting in government agencies is an interesting topic. It works a little differently from the private sector.

Like in any organization or business, departments in government agencies also submit their required budget for the following year. But after that budget has been allotted by the government, they are expected to spend what they had forecast previously. If they do not spend all of their budget, government agencies are expected to return that money at the end of the year and they cannot request so much the following year. So what sometimes ends up happening is that agencies are looking for ways to use up their budget before the end of the year so that they're budget doesn't get a large cut the following year.

I'm not saying that this happens in every agency and every department. It happens sometimes but it's certainly not the best way to do things.

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    • Realistic budgets are usually similar to those of previous years.
      By: Shawn Hempel
      Realistic budgets are usually similar to those of previous years.