Budgeting or Forecasting for the Short Term

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Budgeting or Forecasting for the Short Term

Many small companies have a difficult time with their first attempt at budgeting.  This may be due to a variety of reasons including: to a general lack of understanding of their financial statements; taking the time to think 12 months out into the future; or their immediate problems are difficult to look past.  Here is a suggestion that may help you in this direction that you should be going.

Rather than taking the time and thinking about doing a one-year budget it may be easier and more practical to do a budget for the next quarter or even just the next month.  Try it.  Listing assumptions and setting expectations for a shorter period will be much simpler than and not as exhausting as doing it for an entire year.
Budgeting

Additionally, if your company is having problems such as your profit margins are too low, labor costs are too high, managing the proper inventory levels, etc. drafting a one month well thought out budget followed by an emphasis during that month’s operations on the a particular problem can result in a quick fix or at least a movement in the right direction.

Several monthly budgets followed by quarterly budgets can result in a company developing some good habits.

I might add, when we use the term budget we should think about a somewhat detailed drafting of future financial results that will be used as a benchmark to compare actual results to and taking steps to bring actual back in line with what was planned.  When we use the term forecasting we normally think of a less detailed or more limited projection of major income and expense items to use to determine staffing needs, production, inventory etc

Pete Sabella

Pete is a business advisor for the Southwest ISBDC. Professional Experience: CPA and former partner of BKD CPAs and Advisors; Executive Director and Head of School of the Joshua Academy in Evansville. Educational Background: B.S. in Accounting from Southern Illinois University. Community Involvement: Member of Rotary; serves on the boards of Goodwill Industries and the Montessori Academy. Personal Profile: Married, two children, four grandchildren.
Pete Sabella can be reached at psabella@isbdc.org.
Posted in: Financial

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