Budgeting – The Companion of Forecasting

 Written by the Controller | CFO Advisor Team

While a forecast can be performed to cover a short period of time, the budgeting process tends to take a longer view.  The budgeting process generally focuses on one, two or five year time spans.  The annual budget is usually constructed by month.  As the time horizon is expanded, typically less detail is presented as a broader picture is captured.  Much like the meteorologist projecting tomorrow’s weather (including morning, afternoon and evening, with a high level five day forecast) a five year budget gives you a long term, general outlook at a glance.  

Different types of budgets provide different types of analysis.  A capital expenditures budget lays out the amounts needed for property and equipment.  The most common budget is the operating budget.  This budget attempts to project a realistic picture of anticipated income and costs.  A cash flow budget lays out the projected cash receipts and cash payments over the period of time being budgeted.

Many small businesses follow one of two methods for preparing budgets: the gross or net method.  The difference between the two is the level of complexity that is involved.  The net method budgets for the income statement without using the balance sheet.  This approach obviously takes less time to prepare and works well when there are not a lot monthly swings with balance sheet accounts such as inventory and accounts payable.

Throughout the year actual performance is compared with the operating budget to determine if the business is on track with its expectations.  This is the true value of the budgeting process – a control device that can provide management with a tool to help them direct their attention to an issue when variances have occurred.

BIK’s outsourced Controller|CFO Advisors can develop a budget for your business, to help determine whether your business is on track with your expectations.

The BIK Controller|CFO Advisors:

Tony Battaglia
Tim Beck
Al Knox
Larry Schmitt

Together we can perform a variety of accounting and financial services to help your business run more efficiently and economically.  Our objective will be to improve your bottom line through better processes and procedures. Contact us today at cfoservices@bikcpa.com or call 847-281-3209. 

Visit our web-site at www.bikcfoservices.com.