Budget processing in the companies requires the managers, who are responsible for the result, to allocate and divide jobs of processing budget to the accountants. The accountant would start doing his work after doing broad-based critical analysis of the recent performance of the company. To prepare a good reasoned and thoughtful budget, he will also do analysis of the position hold by the company in the market.
According to the budget processed by the accountant, the managers will decide the working strategies require for achieving the goals of the company. It's in the duty of the managers to judge whether the budget prepared is worth of time and effort and will it take the company to the next level in the coming year.
Efficient and effective models of profit, cash flow, and financial conditions of the business should be created to construct financial statements of the company according to the budget processed. The created financial models work as a blueprint or schematic for the financial statements created in the company. The financial statements are divided into various parts, such as, budgeted income statement and budgeted balance sheets.
Budgeted income statement, also known as profit report, shows the managers the right direction of how to create controlled budget for the company. The statement provides the needful information required to make decisions in the managerial level. The statement is created for the managerial level, hence it is very confidential and protected.
Budgeted balance sheet indicates the relationship between the sales and expenses in accordance to credits and liabilities.
The statements will help the managers in recording and maintaining finance for the company. And the statements recorded for the current year will be used as reference for the next year.
Forecasting is done to prepare the company fight for the future and remain in competition with the market.
Budgeting forecasting is very important for a company as it shows the path the company to how to approach for the goals it has decided to achieve. Generally, nobody can predict what will happen in the future, but doing forecasting on the basis of past and present information and on the trend of the business and market is going on will help in securing future.
Budget forecasting is very important for the company and is done on the regular or on-going basis, keeping in view the changing and dynamic requirement of the business.
The budget forecasting is reviewed throughout the year so as to check the conditions of events affecting the budget and to make changes in order to overcome the negative results.
To decide business strategies of the company, the budget plays the vital role. Hence, budget forecasting is very necessary in maintaining budget of the company. The forecasting helps in developing business plans and business strategies, and enables the managers to follow the right direction to achieve the goals of the company.
While preparing budget forecasting, it is important to consider every workforce of the company including sales people, marketing people, human resource employees or customer care executives.
This will help them in understanding their responsibility towards the budget of the company.
It is necessary to maintain both optional budgeting forecast and cash flow forecast, as cash flow will help in predicting the cash requirements of the company by analyzing capital funds, inventories, finance capital, and working capital.
Budgeted statement of cash flows are prepared to detect the cash flow from profit for the next year on the basis of difference between the current year's assets and liabilities and the projected balances.
Analysis of several factors, such as launch of new products, customer requirements, competition from the other companies in the market, which will effect the revenue predictions for the year, should be done for budget forecasting. And, it is necessary to assess the budget forecasting every month on regular basis to check the performance of budget.
On the basis of performance of budget in the current year, the manager can prepare its company to meet the challenges of the next year. Hence, the manager can easily predict the level of costs and revenues of its company in the market and can start modifying the strategies of the business to reach the goal.