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 business.

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 financial plan for the accounting cycle. At the end of the accounting period, the budget serves as a measure/control device that helps management analyze its actual performance against the budgeted plan.  The purpose of this analysis is to identify shortcomings in the operation and to take corrective action that will improve future performance.  Budgeting and forecasting requires that you envision what your company will do in the future.