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The truth is, many entrepreneurs, NPO’s and small businesses far underestimate the value of budgeting and forecasting in business planning, not realising that it is more than likely one of the main reasons why businesses fail.

Shocking stats: 95% of businesses fail within the first 5 years.

Business Planning is essential for business success

Business planning is most effective when it’s an ongoing process. It is better to be able to act quickly when and where necessary, rather than having to react to events after the fact, once they’ve already happened.

Budgeting and forecasting are essential tools in the business planning toolbox.

Forecasting, financial projections & budgeting cycle for business growth

Analyse historical data to determine trends make projections (forecasting) create strategies allocate budgets compare targets to actuals to determine accuracy, productivity, efficiency and progress adjust to get better results

The more accurate the historical data, the more informed the forecasting, the more accurate the budgeting, the more appropriate the business strategy and the more productive and profitable the operations.

Accurate historical data is key to the whole process, otherwise, it is all based on guesswork, prone to errors, misrepresentation and misinterpretation.

Business Intelligence helps budgeting and forecasting

Good bookkeeping practices, integrated accounting software and management reporting provide the relevant business intelligence you need to make informed decisions and take your organization to the next level. Experts in the field just help make the whole process so much easier.

Outsourced Accounting, Bookkeeping, Payroll makes life easier

Outsourcing the bookkeeping, accounting, payroll, financial reporting, business intelligence gathering, reporting and interpreting means you have more time to do what you do best.

Why budgeting is important

Budgeting is particularly important for small-business owners who often operate with little tolerance for error; being even slightly off on cost projections or earnings can have a devastating effect on the enterprise.

Carefully constructed budgets enable a business to continually track where they are financial. This provides the basis for strategic, long-term planning for everything from current operating costs to potential expansion. Knowing where the budget stands opens up the ability to invest in new machinery, product development or equipment, hire employees and help set earning goals in line with the organizations’ corporate financial objectives.

Budgeting is important because it helps control spending, track expenses, save money, make better financial decisions, prepare for emergencies, get out of debt, plus make sure that the business has money for future projects and stay focused on your long-term financial goals.

Budgeting is the basis for all business success. In short, it helps with planning and control of the finances and operations of the business.

Budgeting Needs Forecasting

Forecasts serve as input for preparing budgets that help management develop the company’s long-term strategic plan.

Benefits of Business Budgeting

  • Enables more effective money management.
  • Better allocation of appropriate resources to projects.
  • Improved performance tracking.
  • More likely to meet your objectives.
  • Plan for the future: set targets for the business as a whole, plus for the different departments or functionality e.g. sales, operations, production, funding, logistics, HR…
  • More informed decision-making e.g. about salaries, bonuses, benefits, overheads and operating expenses.
  • Problems identified before they occur – e.g. the need to raise money, get funding, address cash flow difficulties and create a cushion for unexpected expenses.
  • Increased staff motivation.
  • Greater potential to attract investors.
  • Easier tax preparation.
  • Open lines of credit, if required.

If you need to answer to a board of directors or an advisory committee, a detailed budgeting process will enable you to provide regular earning reports and status updates.

If unanticipated costs exceed projected earnings, appropriate changes can be made because they will be noticed sooner.

Objectives & Functions of Budgeting

  • Budgets compel planning.
  • Budgets provide a basis for control.
  • Budgets improve communication.
  • Budgets improve coordination.
  • Budgeting quantifies the strategic execution plan, then provides the capability to examine the viability of the plan by evaluating the actual performance – comparing actuals to targets.

What Are The Disadvantages of Not Budgeting?

The most common consequences of not budgeting include out of control spending, a lack of savings, less financial security, unable to pay bills at the end of the month, a higher likelihood of going into debt, way more stress, and worst-case scenario, going out of business/ bankrupt.

Poor Budgeting

  1. Inaccuracy is based on inaccurate data, assumptions or misinterpretations.
  2. Rigid decision making if financial outcomes are the only basis for consideration.
  3. Gaming the system can, and usually does, backfire.
  4. Expense allocations only for known expenses.
  5. Spend it or lose it (misguided attempt to ensure you receive the next term’s budget).

Challenges of Budgeting

Budgets are only as useful as you make them.

  • If your information is inaccurate, your budget will be wrong. The larger a business becomes, the more challenging it is to pull in the right information, especially if there is no enterprise-wide system or software.
  • Poorly organized environments require many iterations of the budget.
  • Budgeting takes time, and time is money. It can be very time-consuming to create and keep tabs on budgets.
  • You don’t have the right tools. Traditional budgeting processes take too long and consume too many management resources.
  • Blamed for negative outcomes. If a department does not achieve its budgeted results, the department manager may blame other departments that provide services, information, resources…
  • Budgeting puts a cap on spending and restricts thinking in a big way. Budgeting can cripple creativity, curb risk-taking and lead to problems if the market shifts in a different direction sometime during the budget year and the business strategy and budgets are not adjusted accordingly.

Top 12 Types of Budgets Businesses Use

  1. Master Budget that includes all the functions, i.e. the whole enterprise budget.
  2. Operating Budget.
  3. Financial Budget.
  4. Cash Flow budget.
  5. Production Budget.
  6. Equipment, machinery, acquisition budget.
  7. Personnel Budget.
  8. Marketing Budget.
  9. Sales Budget.
  10. Overheads Budget.
  11. New Projects Budget.
  12. Research and Development Budget.

Best 5 Budgeting Strategies

There are many different methods of budgeting. Here are some of the most used:

  1. Zero-based budget – every cent of your monthly income is used and accounted for.
  2. 50/30/20 budget – spend 50% after-tax pay on needs, 30% on wants, 20% paying off debt or saving.
  3. Envelope budget – put away money for known, expected expenses.
  4. Priority-based budget – do/ pay most important first.
  5. “Pay yourself first” budget – speaks for itself.

Definition of Budgeting

A budget is a financial statement of expected revenues that a business wants to achieve for a specific future period. Budgets are prepared by management before the budget period starts.

Budgets may be adjusted to manage the company’s operations better; improve efficiency, productivity, cut costs, determine the expected financial position and its debt requirements.

A solid budget serves as a road map for a business owners to ensure they are on track to meet their goals as they navigate through each month, quarter and year. Budgets need not be complex to be effective.

A simple estimate of monthly revenue and expenses for a smaller business can be as efficient as fully integrated management financial reports that include a profit and loss, balance sheet and cash flow statement.

The main point is to establish benchmarks for the various budgets and then stick to them e.g. definitive sales and spending targets to achieve your business strategy.

To ensure budgeting is done accurately, it may be worthwhile to hire someone to do it in-house, or an outside accountant or business manager, who has expertise in business finance to establish an accounting system, track expenditures and produce reports that enable business owners to make calculated and informed decisions about business operations.

  • Need a hand to create accurate budgets or forecasts?
  • Need the right reports set up for your business?
  • Wish you could eliminate your bookkeeping, accounting, payroll and/ or finance function from the list of things to worry about?
  • Need an integrated business intelligence system to ensure accuracy of accounting source data?

Consider: Outsourcing your financial accounting function

Outsourced Accounting & Finance

Outsourced CFO: Strategic Planning, budgeting, KPI development, Stakeholder management, fundraising, Acquisitions, M&A

Outsourced Accounting: Management Financial Reporting (timely, accurate), Analysis, Process management, Client Invoicing, CPA Support, Expense Management, Month-end (rigorous, correct), Accounting and Bookkeeping (day-today activities), Take care of UIF, SARS, CIPC queries and activities


  • Need help with forecasts, budgets, business planning?
  • Not sure your source data is accurate because you get different reports from different departments and the numbers don’t add up?
  • Need tailored management reports set up to cater for your business?
  • Wish you could hand over the schlepp of the financial function to a knowledgeable individual, but do not need a full-time staff member to take care of it, nor do you have the funds to hire an expert?
  • Payroll and HR a headache?

Consider: Outsourcing, or get help with… HR, financial accounting, management reporting, budgeting, forecasting



Why Business Forecasting is important

The use of business forecasting provides information that helps business managers identify and understand weaknesses in their planning, adapt to changing circumstances, and achieve effective control of business operations. The use of forecasts in business management is indispensable for nearly every decision in every industry.

Some business forecasting examples include: determining the feasibility of facing existing competition, measuring the possibility of creating demand for a product, estimating the costs of recurring monthly bills, predicting future sales volumes based on past sales information, efficient allocation of resources, forecasting earnings and budgeting, plan for anticipated expenses for an upcoming period of time and scrutinizing the appropriateness of management decisions.

Business forecasting software can help business managers and forecasters not only generate forecast reports easily but also better understand predictions and how to make strategic decisions based on these predictions. A quality business forecast system should provide clear, real-time visualization of business performance, which facilitates fast analysis and streamlined business planning.

Financial and operational decisions are made based on economic conditions and how the future looks, albeit uncertain.

The application of forecasting in business combines art and science; using business intelligence and data science to make calculated estimations of future events.

The biggest secret to financial success – or success in any endeavour – is to think farther ahead than most people do

Why is Forecasting Essential?

Forecasting is valuable to businesses because it gives them the ability to make informed business decisions and develop data-driven strategies. Financial and operational decisions are made based on current market conditions and predictions on how the future looks.

The goal of business forecasting is to develop better strategies based on these informed predictions; helping to eliminate potential failure or losses before they happen.

Business Results Are Key

The more accurate the source data, the more accurate the predictions. Yet, avoid the danger of focusing on forecast accuracy rather than business results. Business results are key.

Benefits of Forecasting to Help Your Organization Excel

  1. Improves cash flow planning.
  2. Support in raising finance/ finding funding.
  3. Time-saving.
  4. Reduces errors and uncertainty on future events.
  5. Can influence cost and delivery performance.
  6. Enhances performance, productivity and profit monitoring.
  7. Helps anticipate change within the market. Become active rather than reactive.
  8. Purposefully direct your company. Informs management decision-making by providing a logical basis for planning and determining in advance the nature of future business operations and facilitates correct managerial decisions about the material, personnel, sales and other requirements.
  9. Proper forecasting gives companies the opportunity to better understand market dynamics, customer and market behaviour, and provide the company’s functions with useful analyses and information.
  10. Assess the success of your efforts. Determine the long-term viability or value of an activity.
  11. Develop benchmarks for use in future forecasts.

Challenges of Business Forecasting

The challenges of business forecasting often stem from poor judgments and inexperience. Assumptions combined with unexpected events can be dangerous and result in completely inaccurate predictions. Despite the limitations of business forecasting, gaining any amount of insight into probable future trends will put an organization at an advantage.

For example, poor sales forecasting and inventory planning can have a significant negative impact on the credibility of a business. When unable to meet demand, it leads to unsatisfactory customer experience, bad press and further loss of sales down the line.

Definition of Forecasting

Forecasting is a technique that uses historical data as inputs to find patterns and the direction of trends. Forecasting helps management make more informed estimates, projections and predictions into the future.

Definition of Financial Forecasting

Financial forecasting is the projection of financial trends and outcomes based on e.g. business drivers as well as assumptions re situational or risk factors that are likely to affect the company during the forecasted period.

Three Main Approaches for Forecasting in Business

  1. Opinion approach, based on experts’ judgements
  2. A historical approach, based on past data, experience and knowledge
  3. Market testing approach, based on the testing market through surveys and research.

Types of Forecasting

The forecasting required for your organization is determined by e.g. industry, market volatility, competitiveness, size, reach, etc.

  • General Business Forecast.
  • Sales Forecast and/ or Company’s Sales Expansion.
  • Capital Forecast.
  • Cash Flow Projections.
  • Employee / Labour Market (Skills Availability).
  • Economic Forecasts (local, national, global and/ or international).
  • Political Forecasts.
  • Business Longevity and Sustainability Forecast.
  • Competitive Forecast (Market Share).
  • Potential Risk Forecasts.

How Financial Forecasting Helps Business Decisions

Every company manager and/ or owner would like to know how the company is actually doing, where it is going, and how feasible it is for the business to achieve its goals and objectives.

Financial forecasts are an essential part of business planning, budgeting, operations, funding — essential to help leaders and outside stakeholders make more informed choices. It also gives management valuable insights into the way the business performed in the past, and the way it is most likely to perform in the future.

Financial forecasting serves as an input for making budget allocations and developing a strategic plan. Forecasts can be short-term as well as long-term.

Cash Flow forecasts over a number of years would inform management in e.g. determining the optimal capital structure.

Business Intelligence Solves Forecasting Issues

Forecasting is tricky in almost all industries. A business intelligence system can be used to improve forecasting.

Changing business conditions, economic uncertainty, and shifts in supply and demand can make accurate forecasting more guesswork than science.  Yet, with a business intelligence system, you can forecast with greater accuracy and precision.

Budgets vs. Forecasts

Investopedia states: “Budgeting quantifies the expectation of revenues that a business wants to achieve for a future period, whereas financial forecasting estimates the amount of revenue or income that will be achieved in a future period”.

Budgeting outlines what you will spend your money on and how that spending will be financed.

A forecast is a prediction of the future whereas a budget is a planned outcome of the future – defined by your plan that your business wants to achieve.

Forecasts are developed based on past sales and expense trends, future sales contracts, trends in growth drivers, and changes in internal and external environmental factors affecting the company, e.g. changes in competition and market share.

In the case of a new company, forecasts could be prepared by tracking the past sales of competitors.

Forecasting provides a direction to the company’s strategic growth plan and helps in making strategic decisions like new product introduction, acquisitions or addressing the cyclical pattern of demand etc.

Forecasting of sales and expenses from past performance or peer performance provides the basis for developing an effective budget.

Comparing a summary budget with the most recent forecast can help management to adjust to changing business conditions and refine budgets in subsequent years.

While the budget provides management insight on what they want the company to attain, the forecast shows whether the company is able to achieve its budget or not.

Make your life easier

  • Need help with forecasts, budgets, business planning?
  • Not sure your source data is accurate because you get different reports from different departments and the numbers don’t add up?
  • Need tailored management reports set up to cater for your business?
  • Wish you could hand over the schlepp of the financial function to a knowledgeable individual, but do not need a full-time staff member to take care of it, nor do you have the funds to hire an expert?
  • Payroll and HR a headache?

Consider: Outsourcing, or get help with… HR, financial accounting, management reporting, budgeting, forecasting