Budgeting and strategic forecasting help develop a corporate roadmap for stability and growth. However, for forecasting to be accurate, it must be adjusted whenever substantial changes occur, either internally or externally. This year, it’s crucial to note that supply chain disruptions and new business rules continue to alter corporate outlooks radically.
If you recognize today that reforecasting is likely to be required next year, you will be better prepared to do it when the time comes. Businesses that expect assumptions will survive an entire year are in for a big disappointment. Incorporating reforecasting into the budgeting process helps them stay on target.
Some businesses are afraid of predicting. Therefore they limit the frequency with which they do so by shortening their budgeting cycles from annual or semi-annual to quarterly or monthly. However, if we are to learn from the lessons of the past, it’s that every organization should be prepared to reforecast as needed, as it may become necessary at any time.
So, as you finalize budgets and predictions this year, employ the “planning to re-plan” approach.
Updating an existing budget holistically following a significant variation from predicted spending or income is known as forecasting. The freshly formed budget will be based on year-to-date results and estimates for the remainder of the year.
Budget forecasting can be overwhelming for firms unprepared to forecast because it requires a complete rewrite of the old budget rather than just a line-item update. However, when businesses resist reforecasting, the budget may become antiquated, and confidence in the budget may weaken, leading to wasted expenditure and stifling growth plans.
When Should You Reforecast?
Regularly compare the budget and year-to-date reports to identify instances where reforecasting is required. When assumptions change, or unforeseen occurrences occur, reforecasting should be done, for example:
- Loss of a vital business partner
- A fire in a warehouse or office
- A legal action
- Significant supply chain interruptions
- A modification to state or federal regulations
- Being rejected by an investor who was supposed to offer funding
- Considerable funding for a non-profit organization has been lost
Remember that reforecasting is required after an unexpected difficulty develops, not after an anticipated change. A negative trend, such as continually growing material costs, is unlikely to warrant reforecasting. Your budget should have enough strategic wiggle room to accommodate expected changes that raise expenses or lower profits.
Helpful Reforecasting Tips
Reforecasting keeps a business nimble and enables management to make swift decisions from staffing to sales and marketing. Follow these reforecasting best practices whenever the budget needs to be changed due to a substantial change in the market or competitive landscape:
Obtain Buy-In
Effective reforecasting is dependent on accurate sales predictions and projected spending data, which necessitates input from multiple departments. Forecasting accuracy will be lower in siloed organizations or corporations where some departments believe they “do not have a seat at the table.”
Budgets should be constantly evolving and shared with people who have the ability to interpret and change the conclusion. Specific departments or specializations may face distinct financing issues or possibilities not accounted for in the forecast. Getting departments involved in the discussion will provide a complete picture of the budget.
Use Automation
Online accounting software can eliminate busy work and keep better track of historical financial data to improve forecasting results. Using automation to draw in year-to-date actual financial data alongside existing budgets makes it easier to cooperate across teams or regions. If your company hires a third-party financial services firm, it should already use accounting software to support accurate forecasting.
Count on the Data
Use consistent computations between the previous prediction and the new forecast when forecasting to make an apples-to-apples comparison that everyone can understand. If assumptions that serve as the framework for strategic planning need to be revised later, document them.
Remember that reforecasting is not a one-time event. After reforecasting, carefully monitor the data to see if the revised forecast holds up. Recognize that numerous reforecasts may be required to keep the company on track, particularly amid large industry and market changes.
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Get in touch with Performance Canvas, the ideal business budgeting software for your financial forecasting needs, for a free demo.
