Business Budget Forecasting
The main purpose of the business budget forecasting process is to let management always know in advance how much cash they will need and when they will need it. In addition, the forecast will set flexible goals that are very effective in controlling expenses. Furthermore, the by-product of the information produced will make the information in financial statements significantly more meaningful and be effectively used for managing the business. How can you assess financial data if you don't know what the numbers should be?
Shell Taper, owner of a small manufacturing company, is an excellent case in point. Recently, when I handed Shell his P&L, it showed a $50,000 profit for the year. Shell looked at it, and then asked me, "How do you think I did?"
"A $50,000 profit seems okay, Shell, but we can't really know how you did if we don't know how you wanted to do. If you anticipated a $250,000 profit, you did miserably. If you anticipated $10,000, you did quite well. You should be predetermining the results of operations, and then when the results are in, you’ll know if you're on the right track."
|
