Budgeting and Forecasting Play an Integral Role in
Growing Your Business
Terry H. Hill
Terry H. Hill is an author, consultant, trainer, mentor, and the founder/managing partner of Legacy Associates, Inc., a business consulting firm
based in Sarasota, Florida. Legacy, http://www.legacyai.com, is the parent company of the online small business, entrepreneurship, and
management training website, http://www.TrainingforEntrepreneurs.com.
One of your company’s strongest assets is its ability to assemble an Annual Operating
Budget and Cash Flow Estimate and to determine financial requirements for achieving
revenue goals. In order to make wise, financial decisions, it is imperative to know your breakeven
point, your direct labor costs in relation to your cost of goods sold, and your monthly cash requirements.
Acquiring operating performance data, on a timely basis, strengthens your ability to better manage your
Reliable operational plans, budgets, and forecasts --that are accurately produced--are
integral elements in growing your business. With systematic processes in planning, budgeting,
and forecasting, your staff shifts its scope from data collection to meaningful data analysis. Planning,
budgeting, and forecasting processes connect your company's budgets to your company's strategies. The
connection between budgets and strategies ensures that the financial resource requirements are available
to support the anticipated future growth of your company.
A budget is a plan of activities expressed in monetary terms of the assets, equities,
revenues, and costs that will be involved in carrying out your company's plans. A Master
Budget is a set of projected or planned financial statements. The Master Budget consists basically of a
pro forma income statement, a pro forma balance sheet, and a statement of cash flows. As a
management tool, the Master Budget is used for both planning and controlling.
At the beginning of an accounting period, the budget establishes your