Budget and Financial Forecasting

A Cash Budget is used to estimate a business's potential cash flows over a specific period of time.  This budget allows management to assess if the business has enough cash to continue to operating for the fiscal year.

Zero-based Budget

A zero-based budget method starts by assuming that all department budgets are reset to zero and must be rebuilt from scratch each fiscal period.

Financial Budget

A financial budget is a plan that outlines how a management will control its finances over a set period of time.  It establishes a comprehensive overview of revenue from the businesses core operations relative to spending.  Thus, a tool for tracking income and expenses, and making informed financial decisions.

Direct Labor Budget

A direct labor budget is a tool that estimates the number of labor hours and the cost of labor needed to produce a specific amount of goods or services. It's a key component of a company's master budget and is especially important for businesses in manufacturing or service industries.

Static budget

Capital Budget

A capital budget is a long-term financial plan that outlines the costs of a major purchase, investment, or development. It's used to determine if a project is economically viable and will be profitable over time.  Capital budgeting involves identifying the cash in flows and cash out flows rather than accounting revenues and expenses flowing from the investment. For example, non-expense items like debt principal payments are included in capital budgeting because they are cash flow transactions.

Overhead Budget

An overhead budget is a business's estimate and allocation of indirect costs, such as rent, utilities, and administrative expenses.  It's a key part of financial planning because it helps businesses manage its resources and to avoid budget overruns.

FORECASTING

Through data analysis and financial modeling, accountants provide valuable forecasts that aides in managements proactive decision-making.  Forecasting is the process of using historical data, market trends, and economic indicators allows mangement to forsee future financial outcomes.  Management uses this information as a critical part of business planning and decision-making.  Forecasting typically includes projections for: Revenue, Expenses, Cash flow, Profit margins, and Sales volume.

There are typically two types of forecasting methods: “Qualitative” and “Quantitative”:

Qualitative Method is based on various expert opinions, market research, and other non-numerical information.

Quantitative Method is base on historical data to identify patterns and trends.  Some forecasting techniques include: the straight-line method, moving averages, simple linear regression, and multiple linear regression.

Another “hybrid” method is call “Historical Forecasting” which is a relatively easy and quick way to forecast.  It involves looking at your last few annual financial statements to see how fast you've grown in the past, and then making a guess about how fast you'll grow this year.  However, it's only using information about your own business, and not looking at broader market trends.