Every company that wants to be financially viable and remain competitive must perform accurate budget planning. This is a fundamental business management tool that provides organizations with an updated financial overview that facilitates decision-making
Accurate budget planning also prepares companies to face changes that may arise over time. 2020 taught us that everything can change from one moment to the next and that in times of crisis, financial planning is the real lifeline that companies can rely on.
Tips for good budget planning
Budget planning provides companies with the tools they need to achieve their short-, medium- and long-term goals. In order to carry it out successfully, you can follow these recommendations.
Before starting a budget, it is necessary to carry out a financial diagnosis of the company to determine what it has. It is essential to analyze income and expense trends from previous years, establish limits for expenses and based on this, set goals for the company.
Make a revenue or sales forecast
To make this forecast you must consider the factors that influence revenue or sales such as the estimated demand for the product or service, competition, target market, production capacity and the average market price of the product and/or service. Based on this information, you can estimate three main scenarios: low, moderate and high sales.
It is key to have tools that allow you to control and track cash outflows. This way you will be able to invest the available resources more efficiently. To budget expenses it is necessary to consider the fixed and variable expenses of the company, the projects in which you plan to invest and contingencies. The latter is essential to consider, since in times of crisis it can make the difference between solvency and lack of liquidity.
Defining these strategies and controlling revenues and expenses is key to planning the budget. However, for this to really be successful you must follow four more recommendations:
- Forecast cash flow, this way you will avoid jeopardizing the fulfillment of the company’s obligations.
- Structure the budget for all areas of the company to facilitate the control and monitoring of the organizational budget.
- Program periodic revisions to determine if budget estimates are being correct and always look for greater profitability.
- Make necessary adjustments according to the revisions made
The coronavirus crisis affected the business models of many companies. Having the ability to make a solid and more accurate budget is key to adequately deal with times of financial uncertainty. To achieve this, it is best to use a software such as Prophix Budgeting & Planning.
This is a powerful solution that allows companies to understand, manage, and optimize their finances through strategic planning, process automation and monitoring. With Prophix Budgeting & Planning you will be able to reduce errors avoiding duplicity of data, increasing productivity, and making accurate decisions based on precise information.
At FusionWorks we help you implement this solution to make your company’s budget planning successful, contact us!