Many companies incorrectly interchange these three terms. Using the expertise gained over 25 years, we will work with you objectively to develop a strategy for all three areas, customized for your particular business. We provide the expert financial leadership necessary to understand how these sets of data are critical for your business.
- A budget is created before the beginning of the year, presented to the Board, and used as a benchmark throughout the year.
- The forecast is a plan that changes frequently throughout the year, reflecting the most likely scenario for the year’s performance. As new information, performance variations, market conditions and industry trends alter current thinking; the forecast is changed accordingly and analyzed against the budget and actual results. Properly organized, and as a separate exercise, the forecast should also be extended to a 12 month rolling forecast basis. Analyzing and making decisions based on a forecast in November, with only two months left in the year, can be misleading. The impact of decisions must be thought out over a longer life.
- Goal setting also changes frequently, but the difference in goal setting is that the numbers are used as a best case scenario for the year end. Goal setting is also used for incentive performance purposes. Few decisions are made based on goal setting.
- A fourth projection is also useful as a worst case scenario. Establishing the most conservative results can be critical to any business, especially in times of extreme unforeseen growth, economic downturn, and prior to major decisions (acquisitions\mergers, large capital expenditure commitments).
Cash Flow Forecasting
A basic, yet critical step in proper planning revolves around the understanding and execution of a detailed cash flow projection. Not creating or failing to review cash status and the inflow and outflows of cash on a regular basis, has caused the failures of more businesses than any other factor. Cash flow should be projected at least 6 months into the future, with the optimum view 12 months out.
CFO 360’s experiences, especially in the service industry where cash becomes most volatile, have provided the essential skills to best prepare companies to stay solvent.