Planning, Budgeting and Forecasting in 10 Easy Steps

Updated June 24, 2022

It's important for any business to form a budget and financial goals so it can be successful. With proper budgeting, company owners, stakeholders and individual departments can allocate resources appropriately so they can continue to keep finances in order. Budgeting planning can also guide a business to understanding exactly what the business needs to earn and how much it has available to spend to stay in good financial standing.

In this article, we define budgeting planning, explain how to create a budgeting plan that works and provide a list of benefits associated with developing a budgeting plan.

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What is budgeting planning?

Budgeting planning is the act of creating and maintaining a budget, then using it to make strategic business decisions and guide organizational changes across various departments. With correct budgetary planning, company stakeholders can have a more substantial idea of the organization's financial standing and current and future financial needs.

The process of budget planning can include these steps:

  • Planning: In the planning phase, company executives discuss and decide on the organization's financial goals for a certain time period, usually five years or fewer.

  • Budgeting: Budgeting includes a plan for how stakeholders will adhere to the budget, and consists of a company's earnings and expenses, debts and any forecasted revenue.

  • Forecasting: The forecasting part of the budgetary planning process involves using the historical financial data of the company and the current state of the market to determine how much money the business will likely make in the next couple of months or years.

Related: How To Plan a Budget Analysis (With Tips)

How to create an effective budgeting plan

Follow these steps to create a budgeting plan that helps facilitate strategic business decisions:

1. Schedule budgeting meetings

It's important to set aside a specific time to create the budget and discuss the company's financial objectives. This will give everyone involved in the process the opportunity to understand more about the budget and the responsibilities they may have to adhere to the budget.

Related: How To Be Effective at Budget Management

2. Gather past finances

Using the company's financial statements, you can see the record of sales and expenses, which can give you some guidance for future income and costs. Using this historical data can help you create a realistic budget that's based on real data. You'll also become more aware of how the company has performed in the past, and you can identify how it can improve in the future.

Related: Different Expense Types and How To Budget Them

3. Form financial objectives

Financial goals bring some direction to the budgetary process. Everyone involved with a part of the finances of the business can follow the same objectives, which gives consistency to how everyone handles their part of the budget.

During this part of budget planning, you can also consider developing strategies that will help the organization meet its goals. Keeping these objectives in mind will help guide the budgetary process. For example, if your company's objective is to increase the amount of money that customers spend in your online store, you may strategize on ways to upsell customers on certain products or increase a particular product line to appeal to a group of target customers.

4. Create a preliminary budget

Your first round of budget creation can include feedback from those involved in the process and historical data. The first draft of your budget should include everything you would include in any set budget plan, like business costs and current and projected revenue, so you can review the plan and make adjustments.

5. Review the preliminary budget

Once you have created a preliminary budget, take the time to review it. Check for inconsistencies, inaccurate financial records, incomplete data or any confusing or misleading information.

6. Revise the budget

Based on the review process, make any revisions to the budget that the group deems appropriate. It's important to revise the budget correctly so that you end up approving a budget that's complete and valid for the organization's needs.

7. Approve the budget

Everyone who was involved in the budget creation process should also look over the budget and give their approval. Having everyone's approval is crucial to make sure the business achieves financial success.

8. Produce a budgetary report

Your budget reports should include all the pertinent and detailed information from the budget meetings. Consider sharing the final budget and all associated reports with the individuals in the business who would benefit from being able to reference the details of the approved budget.

9. Monitor progress

It's important to continue to monitor the organization's progress as it related to the budget. All participants in the budget process can share the responsibilities of monitoring how the organization is adhering to the budget. Although there is a final budget in place, stakeholders should regularly review it to make sure it's still a budget that the organization can follow.

You may determine that there are issues with following a certain part of the budget which the responsible party can address and amend if necessary. Regular monitoring can also remind all parties of the responsibilities they have to follow their particular part of the budget and contribute to the business's financial success.

To effectively and accurately monitor the budget, consider using accounting software or other tools that help eliminate human error.

10. Revise the budget

By monitoring the budget, you may identify areas for improvement. Develop a plan to revise the budget as needed so you can continue to operate with an accurate budget that accounts for all finances coming into and going out of the company.

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Benefit of creating a budgeting plan

There are a lot of benefits that come with developing a budget, including:

  • Money management: An appropriate budgeting plan can help the organization manage its money, making it better able to invest in additional operating needs or business expansions.

  • Informed decision-making: A budget helps all decision-makers make informed and strategic decisions that include real data and timely information.

  • Allocation: There are usually some units of the business that require a set amount of money to operate, and this can vary by department. However, a proper budget helps a business appropriately allocate funds to keep the business running.

  • Problem identification: By creating a budget, you have the chance to identify any current problems. For example, you may have overspent in one category and didn't leave enough funds for another. The budget process can find these instances, and you can prevent any future issues.

  • Future planning: Another benefit of an effective budget is that you can plan for the future. For example, you may realize that the business can afford another piece of machinery that will increase production and, ultimately, increase sales because of more product availability.

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