Business owners often view the process of planning and budgeting as a tedious annoyance. A task that consumes too much time. Yet if they understood its importance and how to make the process work for them, they could see improvements and efficiencies in the running of their own business.
The main benefits and reasons why business owners need forecasts and budgets are :
1] Planning – For example, if your sales forecast includes a big sales event around Christmas time, then it is possible that you may need to order more inventory items, you may also need to hire more staff perhaps or spend more on advertising campaigns. All of these things cost money and you have to gauge an idea of how your business will go about generating the cash inflow to pay for all of these great ideas plus, still keep up with the vendor payments and bank repayments.
2] Extra cash requirements – Still in line with the idea of planning, a cash flow forecast will help you to identify months when cash might be tight and when you may need a line of credit to help you to get by.
3] Timing or delaying certain purchases – If the forecast indicates that your cash resources will be stretched, then it would be a good strategic decision to either delay those purchases or to renegotiate payment terms with vendors, or seek out new supply chain partners.
4] Overall strategic management and direction – Maintaining updated forecasts and budgeting habits will help you to make good strategic decisions for your business such as identifying growth and expansion opportunities as well as tightening up on operations overspending.
