Your Budget is a plan. The thing about plans, everyone knows is……. nothing ever goes to plan.
I’ve heard people say “We spent a bunch of time doing a budget up – surely that’s good enough?”
I say, “Only if each step of the way things remains identical to the scenario you painted when you did the budget – which is just your first version of the forecast anyway”
And nobody painted this COVID 19 scenario, so there are barely any budgets that are still valid.
In a sense, the forecast trumps the budget the moment things deviate from plan that’s why it’s so important.
Imagine this you are $100K < budget after 1 month and $300K < after 3 months :
- Will you catch it up before year-end. If so how much and when?
- Will you make budget for the rest of year and finish $300K <
- Will you remain on this course and be $1.2M< by full year?
- Or will you be worse off – is there more bad news looming?
In these uncertain times, forecasting is super important. The one thing about forecasts are that they are generally out of date by the time the ink’s dry. It’s a dynamic process, feeding off your sales funnel. Most businesses are pre-occupied with survival for now, mitigating costs and applying for income support and stimuli. But soon their attention needs to shift towards a re-start
Done right, forecasting puts you out in front of your business, giving you enough lead time to capitalise on opportunities or mitigate losses.
David Dillon is a Fellow of CPA and CA, has an MBA and over 30 years of corporate experience. He has been the Managing Director of Custodian Backoffice, a specialist Virtual CFO business since 2014. He is also a committee member of the Virtual CFO Association + Author of “3-Levers” https://mailchi.mp/1453761b50c9/cfy6cguw3u “Profit Metrics” and e-book “So, you want to be a Virtual CFO” https://vcfoassociation.com.au/so-you-want-to-be-a-virtual-cfo/