Business trends are growing over the past decades and management teams are needed to adapt to new environments in the market. Budgeting and forecasting are the two main activities that influence the overall performance of any business. These have a significant effect on policy making, profitability, and many other parameters for the business. Their improvement should be the top priority for business organizations. And digitizing these processes as well as using advanced budgeting and forecasting can help boost overall profitability.
Forecasting and advanced budgeting help in the planning of different strategies for businesses. Thus, the business management teams can align their goals in the future in a more efficient way. Both of these processes are very important in deciding the fate of the business in terms of sales, growth in the industry, and building a brand image. In the following sections, we have discussed all the necessary information that will help you understand how forecasting and advanced budgeting can help your business.
Concepts of forecasting and advanced budgeting
Forecasting is the process of studying and monitoring the trends in the market and then predicting the possible results for the business. Usually, forecasting is performed over a stipulated period and involves the study of expenses as well as revenue generated over that period. With each release in the financial statements, forecasting is performed by the finance teams. The key metrics regarding the performance of the business are updated with each quarter or month to provide insights into how the business is performing.
On the other hand, advanced budgeting deals with the planning of the resources owned by businesses with the help of management teams. Advanced budgeting sets a clear path for the organization following which the business can achieve its financial goals and objectives. Regular budgeting usually defines the financial expenses and revenues generated by the company. But advanced budgeting introduces the classification of investments on different projects, estimating cash flows regularly. Other aspects such as monitoring the business risks and internal rate of return (IRR) are additionally managed with advanced budgeting.
Why forecasting and advanced budgeting are important?
Forecasting and advanced budgeting are important for businesses since they have an impact on different operations in the business. These two tools help the business leaders in making better choices along with the stakeholders. Good financial forecasting evaluates the financial outcomes in the future for the business and plays a vital part in the annual budget plans.
There are variables such as the size of the company, the time duration for which the budgeting is done, or the financial forecasting period. But all of these attributes have one common goal, and that is to bring profitability to the business. Most organizations today integrate forecasting and advanced budgeting in a stipulated time frame to get the most out of their business.
In this way both forecasting and advanced budgeting play alongside to boost the efficiency of the business. These two when working simultaneously, provide the realistic goals and the resources that are going to be needed.
Advantages of forecasting and advanced budgeting for businesses
When performed effectively, forecasting and advanced budgeting can help the business in a lot of ways. Some of the best advantages of these two processes in any industry are as follows:
- Advanced budgeting and forecasting help in analyzing the trends in the market which allows businesses to go for finalizing different policies. And since these policies are developed with due consideration to the consumer demands, the profitability increases in no time.
- Advanced budgeting helps in assessing the viability of every individual expense. Similarly, forecasting helps in managing the cash flows and financial requirements of the business. Thus, the management teams are updated with real-time data on resources and inventory.
- A good forecast can be used as a base for advanced budgeting in the next financial year. This can have an effective impact on the investors and financing for the business can be improved.
- Advanced budgeting starts from the base of the business. This ensures that no loose ends are present that can affect policymaking. And ultimately when the finance teams integrate forecasting plans with advanced budgets, the company gets better cost and sales management.
Common challenges in forecasting and advanced budgeting
Though the forecasting and advanced budgeting processes in business have their benefits, there are some challenges involved in their adoption. The key challenges appear because different businesses have different approaches regarding forecasting and advanced budgeting. And since these processes have different scopes as well as complexities, you simply can’t follow a model blindly.
The forecasting and budgeting process are completed by Netsuite demand planning, you have to take into account your organizational structure, the scale of your industry, and the size of the market. These are the following challenges that may appear while budgeting and forecasting for your business:
1. Manual processes
From studies, it has been found that most finance teams around the world still use Excel sheets to operate forecasting and advanced budgeting for businesses. These manual processes do give accuracy but the time consumed in such processes costs the company a lot. And since these activities are labor intensive, the efficiency of the management teams reduces drastically.
To avoid such issues, businesses should switch towards cloud-based computational databases. These online solutions like NetSuite Integration Services provide simple and effective forecasting and advanced budgeting plans that can be instantly customized for any business. Thus, finance teams can focus on areas that need more attention and effort.
2. Disconnected sources
Since finance teams use a lot of software solutions like HRIS, ERPs, and CRM, the data sources remain disconnected from each other. And synchronizing these data to properly plan forecasting and advanced budgeting is very important. The process is slowed significantly by the abundance of suppliers, though. And there are also chances of manual errors when finance teams handle data integration between these sources.
This can lead to the generation of an unreliable budget and forecast ultimately causing a loss for the business as a whole. Tackling this challenge is very crucial for the business and integrated data management can help in reducing the risks of errors in policies.
3. Data validation measures
Forecasting and advanced budgeting for any business, no matter how big or small is a hectic task. And finance teams will be busy optimizing the different components of these processes. In such a time-consuming process, the stakeholders and management should be updated regarding the real-time data.
That’s why there should be data validation measures in NetSuite forecasting and advanced budgeting processes. This will ensure that the audit trails are always maintained and the business can achieve a proper workflow. Thus, the management will be aware of all the significant updates regarding the business policies.
A company’s development and success highly depend on how effectively the management teams adapt to new trends. And to achieve financial stability at the peak of the industry, the business has to properly implement strategies for forecasting and advanced budgeting.
These two factors along with perfect planning can boost the growth of the business to new heights. We’ve discussed all the advantages as well as processes with which forecasting and advanced budgeting can help your business. And we hope that these prove to be revolutionary for your organization too.
Author – Mrudul Modh is the chief NetSuite Consultant of VNMT Solutions, A NetSuite Alliance Partner with years in providing NetSuite Integration Services across diverse industry niches.