Cash Forecasting and Budgeting Assignment Help

Cash Management - Cash Forecasting and Budgeting

Cash Forecasting and Budgeting

Budgeting and forecasting procedure is an event that most companies go through every year. The main aim of performing budgeting and forecasting procedure is to accomplished a financial target which set the future direction of the company.

Most companies create a master budget every year. The master budget is utilized to compare against the company's interim performance which could be in terms of a month or a few months interval. Some companies create interim budgets or forecasts in among the years. The forecast is a combining actual results of the last months with the budgeted figures of the future months to give a envisioned results for the year end.

The budgeting and forecasting process alters from company to company. The template technique and time taken also changes from company to company. Mostly all the processes are done by the Finance department. The rest of the processes are done by the  non Finance departments respectively.

The  budgeting process involves the involvement of all the senior staff in the whole organization.

1.  The senior management arrange a meeting to discuss and set the future directions of the company.

2.  The main financial information like future business targets are determined.

3.   Taking hint from the business plans, a deadline for the  concluding action of the budgets is decided.

4.  The Finance head starts the preparation procedure by collecting the historical financial data and put them in the templates same as the existing financial statements.

5.  The budget templates are then further elongated to departmental or cost centers levels.

6.  The business targets and the templates are circularized to the various departmental heads, both Finance and non Finance managers. All the managers are anticipated to prepare their budgets for their respective areas and devise business plan to accomplish them.

7.  The Finance manager collects all the completed templates from the respective departmental managers and compose into a master budget.

8.  Once the master budget is ready, the Finance manager demonstrate it to the senior management.

The above processes can be summed up into 4 major steps specified below:

1. Set Business Targets

2. Gather Historical Data

3. Prepare Business Strategies and  Plans.

4. Compose into Master Budget

The forecasting process is s bit different from the budgeting process. While the budget sets the targets for the company to accomplish, the forecast renders the company with an idea of what is anticipated.  A budget starts at the same time of a new financial year. However, a forecast is created a few months after the financial year. The forecasting process comprise:

1.  Collection of actual results for the past few months after the new financial year.

2.  Using the actual results, revise the business strategies and plans for any changes required and create a forecast on the results for the remaining months of the financial year.

3.   Combine the actual results together with the forecast for the remaining months to provide a foretasted result for the full financially year.

To recognize the extend of the forecast, investor  can name the final forecast report with the actual number of months with the estimated number of months. For instance, if the number of actual months is 5 months from January to May and the foretasted months is 8 from May to December, the investor  can name the forecast report as 5 + 8 Forecast. 5 + 8 Forecast literally means fifth month actual results plus eight month foretasted results.

The above procedure can be summed up into 4 major steps as follows:

1. Analyze results of Past Months.

2. Revision of  Business Plans and Strategies

3. Prepare a Forecast Based on Revised Plans and Strategies

4. Create the Final Forecast Report for the Full Financial Year

The budgeting and forecasting procedure is a tedious and long process. The most significant point of the whole process is to create the master budget out as soon as possible. It is also important to assure that the master budget is error free as many important decisions are made dependent on it.

These days there are many budgeting and forecasting software available in the market. The decision that whether it is essential to invest in one of these software alters from company to company. Without the software, the master budget can also be done using spreadsheet such as Lotus 123 or Microsoft Excel. With the help of the software, the budgeting and forecasting process can be made easier, systematic and time saving with enhanced accuracy.

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