A man standing in front of a powerpoint display gives a budgeting, planning and forecasting presentation in a conference room full of diverse people seated around a large desk.

5 Steps to Better Budgeting, Planning and Forecasting (BP&F)

Reading Time: 5

Introduction

As businesses evolve and grow, the need for effective budgeting, planning and forecasting (BP&F) becomes increasingly critical. A well-executed BP&F process helps you set a cohesive direction for your organization, establishing the foundation to set business goals, create strategic sales plans, ensure operations fulfillment, and guide interdepartmental collaboration. Chief Financial Officers (CFOs) and other company leaders should use BP&F to measure the business’s performance in achieving specific goals, helping maintain the established direction while remaining agile in response to real-time performance factors. In this blog post, we’ll provide you with specific steps to achieve success in budgeting, planning and forecasting.

Step 1: Budgeting and Setting SMART Goals

The foundation of any successful BP&F strategy is the creation of a comprehensive budget. Start by setting clear revenue and profit goals for the fiscal year. A realistic budget serves as a roadmap, guiding the organization toward its financial objectives.

Once a budget has been established, set SMART goals for sales, revenue, and profits that are based on previous achievements and market forecasts. SMART goals are Specific, Measurable, Achievable, Relevant, and Time-Bound. When setting annual and monthly goals, analyze market trends and consider seasonality factors. Drawing from the past 24 months of data provides valuable insights into seasonal trends and variances. Tying sales to measurable outcomes allows for a comprehensive and strategic approach to success. Thoroughly analyze historical performance, identify cost drivers, and prioritize measurable goals to ensure a grounded and achievable budget.

Bonus BP&F Tip:

If accessing historical data is a challenge, consult with a Fractional CFO or other Management Accounting professional for insights. This exercise often reveals surprising discoveries about your business.

Step 2: Strategic Planning and Forecasting to Achieve Your Goals

Delve into the past 24 months of data to identify seasonal and market trends. Tie sales increases to actionable objectives, creating a plan based on historical trends. If projections differ from actual results, analyze the reasons and adjust your strategy accordingly. Engage relevant departments (sales, marketing, business development, operations) in the budgeting process, ensuring alignment and a unified direction.

Step 3: Confirm the Plan and Align Department Leaders 

Confirm execution capabilities and fulfillment strategies with operations department leaders. Verify your goals are realistic, and that company operations have the bandwidth, product, or consumables needed to fulfill potential sales increases.

Differentiating between routinely achievable goals and stretch goals is key in getting department leaders to endorse your plan — big goals come with added pressure, and aligning stretch goals with employee bonuses is a proven motivation method. Ensure daily and weekly communication of goals to keep everyone on the same page.

Employees at all levels should know what their goals are and understand the company-wide strategy to achieve them on a daily or weekly basis. Many manufacturing companies utilize goal boards that highlight production goals and measure real-time attainment on an hour-by-hour basis. Those hourly production goals are tied all the way up to company-wide profit goals.

However transparent you plan to make your company goals, ensure that department leaders agree on the achievability of the goals and are aligned with the strategy to do so.

Step 4: Use Key Performance Indicators (KPIs) to Measure Goal Achievement

Use Key Performance Indicators (KPIs) to measure performance at department and company-wide levels. Implement a regular reporting cadence, whether weekly or monthly, to track results. Set routine meetings with department leaders to share KPIs, find what works, what needs improvement, and offer your continued support. This ensures a transparent evaluation of progress toward objectives, enabling you to make adjustments to your strategy or your goals as needed.

Step 5: Adjust Your BP&F for Real-Time Performance Factors

Recognize the dynamic nature of markets and be prepared to adjust your plan in real time. As you review performance factors weekly or monthly and identify any shortfalls, you can strategize and create new plans to achieve your goals. According to Omega’s Chief Operations Officer, Mike Catalano, even the most accurate market forecasts are typically up to 80% accurate, making even the most seemingly achievable goals difficult to predict. This doesn’t mean you should plan to fail, rather, plan to adjust your strategy by accommodating unexpected market shifts, adapting to real-time performance factors, and fine-tuning your operations to fulfill new commitments.

Achieve Better Budgeting, Planning and Forecasting

In the ever-changing landscape of business, successful budgeting, planning and forecasting is a dynamic and iterative process. By following these 5 steps, businesses can enhance their strategic approach, adapt to evolving circumstances, and achieve measurable success in their financial goals. Embrace the power of data, collaboration, and flexibility for a robust BP&F strategy.

If your business needs help with budgeting, planning and forecasting, the Fractional CFOs at Omega Accounting Solutions can help you execute effective BP&F that enables financial optimization and creates new growth opportunities. Contact us to learn more.