Let's face it; the modern business world is a never ending maze compromised of internal and external factors. Decisions need to be made in a split second and with technological advances, the time and the window for error have both reduced drastically.‍

So what should businesses do in this environment, especially when there are so many uncertainties and factors to consider? The answer is simple, forecast budgeting!

Forecasting allows companies, like yours, to channel your psychic abilities and try to predict the future, anticipate changes, prepare for different scenarios and try their absolute best to ensure as much accuracy as possible in planning cash flow management.

Businesses today need to know where the money is coming from, going and if they'll have it in a few days or a few months. Forecasting cash flow, bad debts and receivables cycles all require proactive action on the part of the management.

The sole purpose of having a detailed budget for your business is that it allows for business owners to have a detailed view of the company’s finances and their current state. Many firms like to have a step-by-step, item-by-item review and analyses of sales, expenses, wages among many other items. Preparing a comprehensive budget makes this possible.

Budgets don’t just provide a birds-eye view, but they are also a way to show management’s intentions for the future. By allocating certain amounts to a particular area, management can support their strategic decisions upcoming. It provides direction to the organization and acts as a rudder that keeps the company in line with its goals.

Budgets are tools to achieve a structured direction and thus are quite necessary for any ambitious business.

The Pros and Cons of Static and Forecast budgets

There are two kinds of budgets, static and forecasted.

Static budgets are indifferent to volume or any other factor that may vary during the budgetary period. For example, a certain expense may be set at a particular amount and would never be changed regardless of any changes in volume.

Static budgets are great for companies that have slow-paced operations. It is adopted in areas where few changes in the quantity are expected. Naturally, this means that a static budget is a more careful type of budget. Once the budget is set, it is rarely changed because there is no need to change it.

This translates to increased decision-making power for the owner, improved flexibility, and better potential to overcome external factors affecting the business.

Static budgets are based on information previously gathered using past sales and revenue numbers. They also take into account the business owner’s best-educated guess about future business activity.

However, for new businesses, future sales are hard to predict which is a big concern with using static budgets. If for any reason, the predicted revenues fall short, there is no way to readjust the budget to reallocate resources differently.

Another reason static budgets are not recommended for small businesses is that they demand huge resources concerning required man hours to create such a detailed budget. The process of research into past and current trends, historical data evaluation, and prediction of future sales, input, and review takes a lot of time and effort, which is something many small businesses simply do not have.

Further, with static data, everything has to be ready before the next fiscal year starts and no changes can be made once the budget is finalized. For small businesses dealing with many changing market conditions and varying sales data, the budgetary data can become obsolete just months into the new year.

On the other hand, with rolling forecasts business owners can adjust to changing market conditions. They can update and adjust their data each month and quickly adapt to circumstances that affect their business in real time such as new competitors, a surge in demand, cost fluctuations and so on.

Forecast budgeting is a forward-thinking budget. It takes into account a variety of factors that may or may not be within the domain of the company’s operations and thus, not in its control. The forecast budget is driven by interdependencies between items as well as external factors. It is this holistic and comprehensive approach to budgeting that has made the forecast budgets so massively popular.

With a static budget, a business owner is unable to look beyond the 12 month period, and that window shortens by one month with every passing month of the fiscal year, thus limiting the owner’s ability to be proactive.

On the other hand, this is not the case with a rolling forecast where a 12-month+ forecast is always available and as each month passes, another month is added to the forecast, allowing a more holistic picture of the business’s finances.

This translates to increased decision-making power for the owner, improved flexibility, and better potential to overcome external factors affecting the business.

The need for a robust cash flow forecasting solution

All businesses run on scenarios, both best-case and worst-case, and a forecast is not complete unless we have a clear idea about how they can affect the budgetary data. Therefore, business owners need to be able to set up and test multiple scenarios and be prepared for anything.

This can only be achieved when using a powerful cash flow management and forecasting tool.

Flexibility is another key factor that determines the success of a budget. No budgeting is powerful until it allows changes and modifications when necessary. Nowhere is this truer than in cash flow forecasting for businesses where literally anything could happen that can set your budget out of whack.

Forecasting your budget and picturing it simultaneously with cash flow and sale scenarios make it easier for you to cope with uncertainty.

To achieve all of the above, you need a robust cash flow forecasting solution that provides effective budgeting and sales projections capabilities. Dryrun is all that and much more. Our software solution is specifically built for small businesses and gives you the complete picture of your company’s finances and is built using a scenario based flexible and highly collaborative approach.

Dryrun is equipped with highly useful features such as an unlimited number of forecasts, ability to track payables, spreadsheet export, scenario testing, recurring budgeting, compound growth modelling and a whole lot more.

In short, if you are a business owner that understands the importance of cash flow forecasting, powerful budgeting and sales projections and want to stay on top all these things, Dryrun will make your life a whole lot easier.

__

Forecast Your Cash Flow, Revenue and Profit in the Ultimate Scenario-Modelling Tool to gain confidence, clarity and insight into your business.

Dryrun ties automation with unmatched flexibility delivering clear, powerful and accurate forecasts in a fraction of the time spent in spreadsheets.

Book your DISCOVERY CALL to learn about the Dryrun advantage or start your FREE TRIAL today!

Dryrun - A better way to run the numbers.

‍