Managing Growth Through Budgets, Forecasts & Financial Management Principles

Budgeting and financial forecasting is the means by which you can establish a plan to set financial goals and objectives for a business. They are at the foundation of proactive financial management. You can think of budgeting as a way to quantify expected revenues and expenses to help with the financial direction, that is – where you want to go. It also established a reference position so you have something to compare with actual results and assess performance. In turn the feedback loop assists in improving the budgeting process.

Financial forecasting on the other hand indicates if you are heading in the right direction using estimates for revenue you hope to reach in the future. Through these forecasts, you have a better idea of how to allocate your budget. When you use budgets, financial forecasts, and financial management principles, you are better able to manage capacity and growth.

Budgeting 

To understand budgeting, here are the main aspects to consider:

  • Estimates of revenues and expenses
  • Timing of expected cash flows
  • Expected debt reduction
  • Identification of periods where cash flow may need to be supplemented with debt funding.

Your budget can be compared with the actual performance of your business so you can make an analysis of variances. This is how you assess your financial position, keep track of cash flow, and see if you are meeting financial goals for a business. It is prudent to review the budget on a regular basis, with an annual review. With the baseline formed by your budget, you can compare results so you can make changes to forecasts that are more fact-driven. With regular review, your business can adjust the budget as it sees fit to keep it relevant to real-time circumstances.

Financial Forecasting

Financial forecasting is based on estimates using historical data and an assessment of the current business environment to make accurate predictions for future outcomes. As a key factor in effective financial management, financial forecasting allows you to anticipate financial results more accurately. Financial forecasts are based on a number of assumptions and can be used to decide how to allocate your budget. Also, unlike a budget, financial forecasts may be reviewed and updated less frequently.

Reviews depend on how frequently you see strategy changes such as operational amendments, inventory changes or in the event you decide to change your business plan. Financial forecasts are often done in the short and long term. This allows companies to be more responsive when things change in the market or in your own situation. As things change, financial forecasts can be revised to provide insight to help drive decisions such as adjusting production and inventory levels. As well, many businesses use long-term forecasting to integrate with their business plan.

Financial Management

Financial management involves planning, controlling, and evaluating the financial performance and economic structure of your company. Good financial management permits business leaders to be well informed in a timely manner in order to make effective decisions. The medium-term financial plan helps directors determine how funds are spent, to ensure your financial resources are allocated to achieve the best returns on investment. Financial plans must therefore focus on sustainability and optimal use of capital. Effective financial management allows managers/directors to:

  • Improve financial planning: When you have effective financial planning, you can keep you on target towards your goals. If the business is not meeting the proposed trajectory, managers can spot problems and help get the company back on track. It is of course important that goals are realistic in the first place.
  • Finding capital: Proper financial management allows you to identify capital opportunities so you can put limited resources to optimal use at the earliest opportunity. Business managers can then allocate capital based on the financial plan, to ensure each investment is designed to maximise profit without excessive risk.
  • Improve company spending: When the entire team is on the same page, everyone shares responsibility for reduced spending. When team members become critically aware of how their cost cuts affect the bottom line and they become more effective at contributing to company savings.

In short, financial management creates a more stable path to contributing to growth. 

Real-time Financial Data

Real-time financial data allows you to review information in a timely manner. It has become important to businesses as it has a positive impact on performance. When accountants and managers can follow performance on a “minute to minute” basis, they have superior visibility to make decisions and, more importantly, proactively. Real-time tracking allows you to:

  • Understand your business performance
  • Be alert to fraud and errors
  • Make accurate business predictions and forecasts, with more realistic financial goals for a business
  • Use up-to-date reporting to make strategic business decisions

But how is having access to this data possible? The answer is good accounting software.

Modern Accounting Tools 

Technology has introduced cloud-based accounting software that provides real-time financial data and streamlined business accounting using data-feeds and elements of automation and artificial intelligence. Popular accounting software tools ideal for small businesses include:

Intuit QuickBooks

This is a popular choice because it’s one of the first. It allows you to:

  • Track expenses and income
  • Organise your receipts
  • Create invoices
  • Accept customer payments
  • Track your vehicle use
  • Track time accurately
  • Manage employee payroll
  • Manage inventory
  • Keep organised
  • Access important key data

Xero 

This New Zealand company provides an exceptional cloud-based system with excellent features including:

  • Invoicing
  • Bank connections
  • Information security
  • Projects tracking for profitability
  • Inventory
  • Bank reconciliation
  • Pay bills
  • Manage expenses and receipts
  • Payroll  
  • Professional quotes
  • Purchase orders
  • Business performance
  • Fixed assets
  • Reporting
  • Multi-currency
  • Contacts and smart lists

MYOB

MYOB helps you manage your finances with the following features: 

  • Pay staff
  • Invoicing
  • Reports and budgets
  • Track jobs
  • Bills and expenses
  • Inventory
  • Bank reconciliation
  • Manage customers & suppliers
  • Take payments
  • Cash flow management
  • Online accounting
  • Multi-currency
  • Account sharing
  • Timesheets and rosters

Cashflow Manager

Cashflow Manager has a user-friendly format providing an easy solution for your accounting needs including:

  • Invoicing
  • Automatic GST calculation
  • Cash flow and budgeting
  • Profit and loss
  • Summary reports

Many clients tailor their software needs with the help of our in-house software trainers in all of the above popular packages. Often our accountants in Adelaide assist in finalising monthly financial statements for management meetings and we are also able to offer regular assistance to management with our business advisory services – a valuable service in the nature of a Virtual CFO.

Virtual CFO

Taking advantage of a full-service accounting service provides the best of both worlds. An external Consulting CFO uses cloud-based accounting software to collaborate with management virtually, so you have up to the minute data in conjunction with experienced, professional financial management. Highly secure and equally effective as an internal CFO, a virtual CFO provides you with all the skills and knowledge required to handle all aspects of your company’s financial management including budgeting, financial forecasting, taxation compliance and overall performance. As a result, businesses can effectively manage growth, enjoy sustainable profitability and pursue profit improvement objectives.

Full time employees with these skills are expensive should you retain them in-house.  A much more cost-effective option is to work with your accountant as your Virtual CFO, conferring with you to review financial performance on a monthly or quarterly basis.

Budgeting and financial forecasting is the means by which you can establish a plan to set financial goals and objectives for a business. They are at the foundation of proactive financial management. You can think of budgeting as a way to quantify expected revenues and expenses to help with the financial direction, that is – where you want to go. It also established a reference position so you have something to compare with actual results and assess performance. In turn the feedback loop assists in improving the budgeting process.

Financial forecasting on the other hand indicates if you are heading in the right direction using estimates for revenue you hope to reach in the future. Through these forecasts, you have a better idea of how to allocate your budget. When you use budgets, financial forecasts, and financial management principles, you are better able to manage capacity and growth.

Budgeting 

To understand budgeting, here are the main aspects to consider:

  • Estimates of revenues and expenses
  • Timing of expected cash flows
  • Expected debt reduction
  • Identification of periods where cash flow may need to be supplemented with debt funding.

Your budget can be compared with the actual performance of your business so you can make an analysis of variances. This is how you assess your financial position, keep track of cash flow, and see if you are meeting financial goals for a business. It is prudent to review the budget on a regular basis, with an annual review. With the baseline formed by your budget, you can compare results so you can make changes to forecasts that are more fact-driven. With regular review, your business can adjust the budget as it sees fit to keep it relevant to real-time circumstances.

Financial Forecasting

Financial forecasting is based on estimates using historical data and an assessment of the current business environment to make accurate predictions for future outcomes. As a key factor in effective financial management, financial forecasting allows you to anticipate financial results more accurately. Financial forecasts are based on a number of assumptions and can be used to decide how to allocate your budget. Also, unlike a budget, financial forecasts may be reviewed and updated less frequently.

Reviews depend on how frequently you see strategy changes such as operational amendments, inventory changes or in the event you decide to change your business plan. Financial forecasts are often done in the short and long term. This allows companies to be more responsive when things change in the market or in your own situation. As things change, financial forecasts can be revised to provide insight to help drive decisions such as adjusting production and inventory levels. As well, many businesses use long-term forecasting to integrate with their business plan.

Financial Management

Financial management involves planning, controlling, and evaluating the financial performance and economic structure of your company. Good financial management permits business leaders to be well informed in a timely manner in order to make effective decisions. The medium-term financial plan helps directors determine how funds are spent, to ensure your financial resources are allocated to achieve the best returns on investment. Financial plans must therefore focus on sustainability and optimal use of capital. Effective financial management allows managers/directors to:

  • Improve financial planning: When you have effective financial planning, you can keep you on target towards your goals. If the business is not meeting the proposed trajectory, managers can spot problems and help get the company back on track. It is of course important that goals are realistic in the first place.
  • Finding capital: Proper financial management allows you to identify capital opportunities so you can put limited resources to optimal use at the earliest opportunity. Business managers can then allocate capital based on the financial plan, to ensure each investment is designed to maximise profit without excessive risk.
  • Improve company spending: When the entire team is on the same page, everyone shares responsibility for reduced spending. When team members become critically aware of how their cost cuts affect the bottom line and they become more effective at contributing to company savings.

In short, financial management creates a more stable path to contributing to growth. 

Real-time Financial Data

Real-time financial data allows you to review information in a timely manner. It has become important to businesses as it has a positive impact on performance. When accountants and managers can follow performance on a “minute to minute” basis, they have superior visibility to make decisions and, more importantly, proactively. Real-time tracking allows you to:

  • Understand your business performance
  • Be alert to fraud and errors
  • Make accurate business predictions and forecasts, with more realistic financial goals for a business
  • Use up-to-date reporting to make strategic business decisions

But how is having access to this data possible? The answer is good accounting software.

Modern Accounting Tools 

Technology has introduced cloud-based accounting software that provides real-time financial data and streamlined business accounting using data-feeds and elements of automation and artificial intelligence. Popular accounting software tools ideal for small businesses include:

Intuit QuickBooks

This is a popular choice because it’s one of the first. It allows you to:

  • Track expenses and income
  • Organise your receipts
  • Create invoices
  • Accept customer payments
  • Track your vehicle use
  • Track time accurately
  • Manage employee payroll
  • Manage inventory
  • Keep organised
  • Access important key data

Xero 

This New Zealand company provides an exceptional cloud-based system with excellent features including:

  • Invoicing
  • Bank connections
  • Information security
  • Projects tracking for profitability
  • Inventory
  • Bank reconciliation
  • Pay bills
  • Manage expenses and receipts
  • Payroll  
  • Professional quotes
  • Purchase orders
  • Business performance
  • Fixed assets
  • Reporting
  • Multi-currency
  • Contacts and smart lists

MYOB

MYOB helps you manage your finances with the following features: 

  • Pay staff
  • Invoicing
  • Reports and budgets
  • Track jobs
  • Bills and expenses
  • Inventory
  • Bank reconciliation
  • Manage customers & suppliers
  • Take payments
  • Cash flow management
  • Online accounting
  • Multi-currency
  • Account sharing
  • Timesheets and rosters

Cashflow Manager

Cashflow Manager has a user-friendly format providing an easy solution for your accounting needs including:

  • Invoicing
  • Automatic GST calculation
  • Cash flow and budgeting
  • Profit and loss
  • Summary reports

Many clients tailor their software needs with the help of our in-house software trainers in all of the above popular packages. Often our accountants assist in finalising monthly financial statements for management meetings and we are also able to offer regular assistance to management with our business advisory services – a valuable service in the nature of a Virtual CFO.

Virtual CFO

Taking advantage of a full-service accounting service provides the best of both worlds. An external Consulting CFO uses cloud-based accounting software to collaborate with management virtually, so you have up to the minute data in conjunction with experienced, professional financial management. Highly secure and equally effective as an internal CFO, a virtual CFO provides you with all the skills and knowledge required to handle all aspects of your company’s financial management including budgeting, financial forecasting, taxation compliance and overall performance. As a result, businesses can effectively manage growth, enjoy sustainable profitability and pursue profit improvement objectives.

Full time employees with these skills are expensive should you retain them in-house.  A much more cost-effective option is to work with your accountant as your Virtual CFO, conferring with you to review financial performance on a monthly or quarterly basis.

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