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10 Keys to Better Budgeting and Forecasting for CEOs

Posted by Dennis Najjar on December 29, 2016

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A company relies on the vision of its CEO to navigate the competitive waters of its own industry and to understand how outside forces can affect the company's progress towards its goals. The budgeting and forecasting processes are the ways in which a CEO formulates their ideas and then gives those ideas structure.
One of the most common mistakes in the world of business is to use the terms "budgeting" and "forecasting" interchangeably. Forecasting is taking all of the information available and creating the vision for how the company will operate in the coming year, while budgeting is the manner in which the company will withstand changes in its industry to fund its own future.
 
While these two critical business practices are different, they do share common principles that are used to create success. As a CEO, it is your job to utilize these principles to develop actionable ideas that will give the entire company the confidence it needs to move forward.

Have the Goal in Mind First

Successful CEOs know that they don't just plug numbers into forecasts and budgets to see where those numbers will end up. Before the details of any business plan can be put into effect, the CEO must first know where they want to wind up when the plan is completed.
 
Every budget and forecast has an expiration date that is usually one year after the plan has started. If you want 20 percent growth, then you need to start with that goal and work backward to create the budget you will need to meet that forecast.

Never Work Alone

Each member of your immediate staff has experiences and skills that can work in your favor when trying to complete a budget or develop a forecast. You should work within your team to create a synergy that can lead to innovative ideas that guide your company towards its long-term financial goals.

Be Comprehensive

The process of forecasting requires a significant amount of detail that is used to create a variety of focused business plans throughout the year. If you leave out any details, your entire forecast and associated budget could be way off by year's end.
 
The idea of being comprehensive is associated with working as part of a team. Each team member should be responsible for making sure that certain details are included in all forecasting and budgeting plans.

Don't be Afraid to Compromise

The biggest fear CEOs have of compromise is that they will have to give up something that is a key component of their vision. If you plan properly, your forecasts and budgets will all serve to move your vision forward, even if you have to leave some of your ideas behind.

Remember that Cash Flow and Profit are Different

When you are forecasting for the next fiscal year, it is easy to get cash flow numbers and profit projections intermingled. Your bottom line can look great as you finalize your budget, but the cash flow could be hampered because of bad planning.
 
Your profit could be reflecting money that has not even been billed yet, while your cash flow suffers. Keep these two ideas separate and address them as separate line items in your budgets and forecasts.

Have the Best Tools Available

Most CEOs run into time issues with their budgets and forecasts because they do not use the right kinds of tools to get the job done. Smart CEOs benefit from the vast amount of software tools available that can help to make budgeting and forecasting more efficient and accurate.

Temper Your Historical Data

The idea that your historical data should be your guide for next year's budgets and forecasts is dangerously misleading. Every industry and company changes from year to year and relying on last year's data to create next year's numbers is asking for trouble. Use your historical data as a tool to help develop your numbers, but don't lean on that old data as your only guide to success.

Manage Your Industry Trends

CEOs love numbers because numbers tell the kinds of stories CEOs want to hear. Every CEO treats industry trends differently, but those trends need to be a significant part of your budgeting and forecasting processes. If you are forecasting double-digit profits for a year where your industry is headed for an economic collapse, then you will need some compelling data to sell your ideas to the company for the coming fiscal year.

Remain Flexible

Every budget and forecast has a buffer installed to help protect against unforeseen obstacles, but you should always remain flexible in how you set up your buffers for each year. Your buffer should change throughout the year as you start to get a better idea as to where industry trends will be headed.

Keep Your Funding Options Involved

Budgets and forecasts are dynamic business plans that involve several moving parts. You may plan on outside funding for certain projects throughout the year, but remember to keep those funding options available in case you cannot meet your revenue projections.
 
When a CEO releases their budgets and forecasts for the coming year, these become the blueprints for all of the company's business plans. In order to keep their vision alive for the future of their company, a CEO has to develop budgets and projections that excite the company's employees and keep the shareholders happy at the same time.
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Tags: accounting tips, revenue forecasting, accounting processes, budget