First, it’s essential to have well-structured financial reporting that provides useful and reliable information monthly. However, reports mainly reflect past events and offer limited insight into future occurrences. This is where Planning, Budgeting, and Forecasting come into play.
Planning is a tactical process defining the long-term direction of a company. It results in a plan that includes, among other things, the financial objectives of the company.
Budgeting allocates financial resources to various expenses, like production, marketing, or salaries, in general. It also clarifies commercial objectives and monitors progress. Budgeting typically involves estimates of income and expenses, as well as expected cash flow and debt position. This process is usually conducted at the start of a new fiscal year, and the budget is then compared monthly to actual financial statements to identify differences and define necessary actions.
Forecasting involves monthly assessments of the likely actual status of all types of revenues and costs. This latest estimation of reality provides information on whether adjustments are needed, like increasing production due to higher demand or cutting costs.
The key is not which of these financial techniques to use, but how to practically combine these three types of forward-looking approaches. Smartbooks is specially developed with these three financial best practices as a foundation.