Budgeting and Forecasting in the Financial World

Financing is usually accompanied by budgeting and the forecasting. The annual budget of a company is one of the most tedious activities that the company has to go through, as could be seen in the local media when the annual budget of the country has to be thoroughly placed under public scrutiny. Unfortunately, just like anything, the approval of the budget can take some time and there may already be changes in the market conditions which also play a large role in the operations of a company, large or small.

The budget will depend on the financing forecasts but the two may be confused for they are somewhat similar. The difference between the two is that the budget is usually set by a committee which has to be agreed and approved on by the administrative body. The forecast is a prediction or an expectation based on the current market trends. The probability of what may happen to that market will set the trend on the budget for the next year.

The budgeting will have to undergo a lot of research and planning, a process that can be done in several ways by different individuals. There is the top down process where there is no necessity to involve the whole company in the planning of the budget. In this case, only the top brass are consulted, the board of directors and the senior management teams. Then there is the bottom up method where obviously, the planning involves the rest of the company, from the bottom ranks all the way up.

The budgeting is one of the most crucial and important elements that make a company operate smoothly. If the budgeting is too small and the company has the potential to grow, then this could cull the growth process and pull down the company profits. This is the very reason why it literally goes through the wringer of questions and answers before it can be approved.