Budgeting and Forecasting

An extension of the 13-Week Cash Forecast is a monthly forecast for the balance of the current fiscal year and one following fiscal year. Such information can serve a dual purpose and become the firm's operating budget.

Forecasting is both an art and a science. It may be based on solid accounting principles, yet forecasting requires experience and insight to merge accounting history with current knowledge and future assumptions in order to create the financial road map.

A forecast should not only estimate future revenues and expenses, but also project changes in the balance sheet that drive the cash flow and provide insight to important operational questions; such as: Will the company generate sufficient cash flow to service its debt? Is the line of credit adequate to cover a one-time 30% spike in sales? A functional, well constructed forecast model will answer such questions. While models do not guarantee results, if done properly, forecasts will state the company's approximate financial position, if the assumptions are met. Forecasts represent an important planning and performance measurement tool.

Bad Assumptions or Bad Execution?

Understanding variances from the budget is critical to management decision-making. Did the business change or did management misjudge? Analyzing budget variances places a spotlight on areas that are not performing per plan and helps to identify why.

RMA has the experience to assist companies create functional operating budgets and integrate this financial information into the business decision making process. Over the years, RMA has successfully worked with and advised different types of companies - small companies, multi-location businesses, multi-department/divisional firms, and conglomerates.