The past global events tell us it’s never easy to plan for the future. If your business is abruptly impacted by anything like a coronavirus, a delayed product launch, or an unexpected purchase, your corporate budget may quickly become obsolete.
Reforecasting is crucial to help you adapt your budget and still be on track to meet your objectives for the fiscal year. Reforecasting is particularly useful when unexpected events happen from time to time, and your company’s actual performance is moving above or below the annual budget that it no longer produces value.
There are other scenarios where you’ll need to update your budget and reforecast because it has become obsolete, such as:
- Complaints from sales teams that budget expectations are too lofty
- Lack of budget ownership from department leaders
- And when finance execs begin to say budget targets from your KPIs are no longer relevant
Some organizations have a specified monthly, quarterly, or semi-annual reforecasting process in place, and when the unexpected occurs, they account for it the next time they reforecast. These businesses use budgeting and forecasting software such as Performance Canvas Financials to reduce the time and effort required to develop budgets and forecasts.
Other organizations’ forecasting systems use a single annual budget as a baseline. A “forced” reforecast due to unanticipated occurrences may lead to more disruptions to people’s work schedules.
The Need for Budget Reforecasting
When a company’s budget becomes obsolete, some may do nothing and accept the undocumented remarks and questions until the budget for next year is released. They can also maintain the budget and utilize report comments to justify significant budget variations. Alternatively, they may choose to replace the now-defunct budget with the updated forecast for the year’s balance.
Most businesses enter corporate forecasts at a higher level than the yearly budget. This is frequently done exclusively at the Profit & Loss account level, with some exceptions for the Balance Sheet and Cash Flow.
Smaller firms with well-organized, home-grown Excel models can forecast in their spreadsheets and then re-import the forecast into their ERP system or third-party reporting tool in most circumstances. Due to division or department needs, forecasts may involve much work in mid-sized and bigger companies. These businesses either have additional human resources to do the work or utilize budgeting software to automate it.
How Should You Plan Your Budget?
There are ways to circumvent the frustratingly slow bottom-up data entering procedure, whether your forecasting requirements are basic enough to be handled with Excel or your organization uses a contemporary budgeting application. The issue with the latter is that the new forecast may already be out of date by the time you finish. In many circumstances, the unexpected event that prompted the reforecast may have changed again, forcing you to restart.
Automation of budgeting and forecasting software often implies that your input model is heavily formula driven. For example, your forecast model can automatically calculate all essential entries such as % Revenue Increase, Target Net Income, Reduction/Increase in Headcount, and so on. This feature is known by several names, including top-down strategy or driver-based modeling. Financial management software with an automated reforecasting feature like Performance Canvas can provide an entire forecast in a shorter period.
With budget planning software like PCF, finance teams can generate several situations with an automated model. For example, you can set up “Best Case,” “Worst Case,” or “Likely” forecast scenarios so you’re ready for the unexpected without having to reforecast everything.
When your organization has the necessary tools and processes to do budget reforecasting, you’ll have what you need to deal with unforeseen events such as another viral epidemic, stock market fall, or competitor acquisitions. Planning will lower the organization’s finance team’s stress and blood pressure.
Explore other valuable features that Performance Canvas can offer. Visit performancecanvas.com today.
