Understanding Budgets And Cashflow Forecasts

It’s suggested that directors should be making enquiries on the basis of the preparation of budgets and cashflow forecasts for the company. Now is the time to be asking these questions because many companies will currently be preparing budgets for the 2015/16 fiscal year.

A sound budget process commences with market research:

  • What is the feedback from the customers and market focus groups (if held) on the likely success of a particular product?
  • How many sales are budgeted to occur?
  • What type of promotion is going to be required to sell the number of units that have been identified in the market research documentation?

Market research forms the foundation for the preparation of budgets and cashflow forecasts. It gives the preparer of the budget something on which to anchor their forecast. Once the market research has been completed, it’s possible to move into the budget process.

The first area to commence is product development budgets:

  • How many “widgets” can the company produce with its current equipment and labour team?
  • How does this number compare to previous years?
  • Are other targets realistic?
  • Have all the labour costs been reflected into the product development costs?

Normally, some of the members of the workforce have not been incorporated within the product development budgets. Has the cost of those other persons been appropriately reflected in the expense budgets for the company?

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