It’s the beginning of the new year, and you’ve gone through the arduous process of creating your 2023 budget. Don’t let all that work and maybe even some hair-pulling go to waste! Budgets aren’t just something to do for fun; they are intended to increase revenue and cut spending costs. Projecting your budget allows you to forecast growth for the new year to improve the business strategy. This is the time to make tactical changes that will benefit your company long-term.
The first thing you need to know is that there is a difference between a budget projection and a budget forecast. The most significant difference between these two terms is the component of time. A budget projection is intended to be a long-term goal of one or more years, and a budget forecast is a short-term goal of usually less than a year or between the range of one to four quarters. A budget projection is the what, and the budget forecast is the how to achieve the goal set out in the budget projection.
A budget projection is an umbrella goal, and within that umbrella are budget forecasts that make those larger, overarching goals more attainable for you and your employees. Budget forecasts are goals that keep individual departments accountable for their component of the goal because each department plays an individual role in achieving the greater, intended goal. Budget forecasting aids in building revenue, reducing expenses, and allowing departments within your organization to develop an internal commitment to your company’s goals and values to achieve long-term success.
Budget projections help support financial decision-making to ensure you know where to invest your time and money. It is also a method to plan and prepare for future expenses so that you are not surprised or devastated when you get hit by a recession or other economic downturn. Budget projections help you prepare and plan for expenses to increase revenue based on the supply and demand patterns of the market to cater those analytics to your company’s product or service.
For example, wouldn’t it be nice to know if a key component in your product is going to have a shortage in Q3? Then you could stock up in Q2 and continue on with business as usual. These are the kinds of trends projections look like.
Creating a master budget and an overhead budget can help you plan for possible economic down-turn and scenarios that may negatively affect your business. Creating a master budget and an overhead budget also establishes that your company is growing and making money to be sustainable in the market.
What is the difference between a master budget and an overhead budget? The most significant difference between these two budgets is that one can change, and one is intended to stay the same despite changes in the economy.
An overhead budget is much like a budget projection, presenting the expected expenses of the year, but it may change depending on the market or your company’s success. A master budget is a budget or document that your employees can refer to when making financial decisions about expenses based on revenue; this budget does not change. The master budget acts much like a key to your employees’ financial decision-making to increase accuracy and keep your expenses down and revenue up.
You are 42% more likely to achieve a goal when you write it down than if you do not. So, use budget projections to your advantage, don’t just check a box off a list. Optimize your projections to see the growth and expansion of your business within your market. Make budget projections and budget forecasts to ensure that you are making visible progress toward the goals you set and intend to achieve. Your goals no longer need to be wishful thinking. Not sure where to start? Or behind on your budgets? C-level Strategy can help. We have the expertise to take you from where you are and to where you want to be.
Gain a competitive edge in the marketplace and free up valuable time and resources to focus on growth and innovation.
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