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Better Budgeting & Forecasting

Companies must anticipate their future expenses & revenue.This Fresh Insights posts outlines tips & tools on how to improve your budget & revenue forecasts.

Despite the fact that budgeting and forecasting are two core financial functions, many companies operate from budgets and forecasts that are grossly inaccurate and out of date. Usually, this is due to a static budgeting and forecasting process that provides limited flexibility to make changes based on what’s really happening in the business.

Often, a company’s actual sales results and expenses start diverging from the projections within a quarter or two, if not sooner. But the static annual budgeting process does not accommodate the ability to make adjustments that reflect changes in the assumptions upon which the budget and forecast were based.

As a result, employees continue to be held accountable for financial results and performance that may no longer be attainable given current realities. And more significantly, the company continues to move forward with plans that are based on an outdated budget and inaccurate projections.


Rolling Forecast & Budget = More Flexibility

The key to better business budgeting is to build some flexibility into your budgeting and revenue forecasting processes. One way to do this is to replace static budgeting with rolling budgeting and rolling forecasting. This will enable you to make changes to your budget that reflect the changes that have occurred in your assumptions and the actual financial results that have occurred, while still tracking long-term revenue targets and objectives.

As the name implies, a rolling budget is adjusted each month or quarter based on the results of the previous period. At this time, new forecasts are made for the upcoming period, also based on current results. This allows your company to always make business decisions based on the most current financial data that’s available. And your employees are held accountable for achieving sales and financial goals that are realistic given what’s happening in your business right now, instead of what may have been inaccurately forecast many months ago.

According to Cadence Bank Executive Vice President and Treasury Management Executive Katrina Michalk, businesses can realize a number of benefits by implementing rolling budgeting and forecasting. “The biggest benefit is the fact that they will have access to more accurate information,” she says. “This will help owners and executives make better business decisions, while also providing them with the flexibility they need to adapt to ever-changing business conditions.”

Switching from traditional to rolling budgeting and rolling forecasting will be a process, so it’s important to get buy-in from everyone involved. This starts with taking the time to explain why you’re making the switch and how it will benefit employees and your business. Also walk employees through the process so they understand exactly how it works and what their new responsibilities will be.

Once you start the rolling budgeting and rolling forecasting process, strive for consistency in terms of when you update your budget and revenue forecasts (for example, monthly or quarterly) and the tools you use in doing so. And try to remain focused on the information and data that have the most direct impact on your company’s success — otherwise, you could find yourself drowning in data overload.


Talk to Your Bank

Michalk stresses that treasury management tools from your bank can help as you transition from traditional to rolling budgeting and forecasting. “These include information reporting tools like BAI reporting and multi-bank balance reporting that will enable you to access account and transaction information in a consolidated view from all of your banks in a timely manner,” she says. “This helps ensure that you’re working with the most recent data.”

Businesses also can use Positive Pay to help with cash forecasting. Michalk adds: “Since we load the check issue file and have checks pay against the account, we can provide a check outstanding report that clients can pull on a daily basis to determine the cash flow needed to cover checks clearing that day. Clients also can export paid check items from our Positive Pay system into their accounting system to automatically reconcile on a daily basis.”

Read more about the benefits of cash forecasting and how treasury management tools from Cadence Bank can help in this process.

To learn how Cadence’s single sign-on portal is designed around the workflow process of a cash management team, please contact your Cadence Bank Treasury Management representative.


This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.

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