Find the time to budget, forecast

In 2020 it seemed like manufacturers took more hits than a Sabian hi-hat in a Neil Peart drum solo as border closures, supply chain interruptions, and cancelled orders became the new business norm.

Even if your company retained its work, it’s likely that your budgeting and forecasting were of the fly-by-the-seat-of-your-pants variety. It was about getting by. As we enter 2021, however, it’s time to stop improvising and ad-libbing. For fiscal 2021, budgeting and forecasting need to be more traditional in nature than 2020, while still being flexible so you can react quickly to change.

While they are both financial tools, and the words are sometimes used interchangeably, they do differ. A budget is what you want to achieve. A forecast is what history shows you will achieve.

Budgets are a detailed statement of a company’s revenue goals (and other metrics) over a set accounting period, typically a year. They are compared to that period’s actual data to determine how the results varied from the expected outcome. This comparison shows you if your vision for the company is being achieved.

You can set budgets for just about anything – revenues, expenses, cash flow, debt reduction – and they are a good source of data for financial key performance indicators (KPIs).

When the pandemic started, it forced managers to become more flexible and prompted changes to allotted budgets to account for the new reality in which we found ourselves. If COVID-19 disrupted budgets, it threw a monkey wrench into forecasts.

Forecasts essentially are estimates of future outcomes and can be both short- and long-term in nature. They are based on historical data and are strategic exercises. This type of planning helps model various business scenarios and, over time, reveals whether you will meet your strategic financial goals.

Forecasting enables managers to anticipate future financial scenarios and should be regularly updated when changes occur. Any major alteration to operations, costs, and revenues should initiate an update.

These financial tools work together to create a clear image of a company’s financial standing.

The goal of any budget is to maintain control of spending and manage earning expectations. Thanks to COVID-19, a perfect budget may be unattainable. That’s no excuse not to have one, but don’t get too attached to it. It may need adjusted in the coming months.

Forecasting during a pandemic is even harder, and forecasts should be updated regularly as business conditions change. It may require a deep dive into your past data – think the recession of 2008-09 – but it should be possible, even in an uncertain time.